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Managing Inequality over Business Cycles: Optimal Policies with Heterogeneous Agents and Aggregate Shocks

Abstract : We present a truncation theory of idiosyncratic histories for heterogeneous-agent models. This method allows us to solve for optimal Ramsey policies in such models with aggregate shocks. The method can be applied to a large variety of settings, with occasionally binding credit constraints. We use this theory to characterize the optimal level of unemployment insurance over the business cycle in a production economy. We find that the optimal policy is countercyclical.
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https://hal-sciencespo.archives-ouvertes.fr/hal-03501381
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Submitted on : Thursday, December 30, 2021 - 2:00:47 PM
Last modification on : Saturday, May 14, 2022 - 3:18:59 AM

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François Le Grand, Xavier Ragot. Managing Inequality over Business Cycles: Optimal Policies with Heterogeneous Agents and Aggregate Shocks. International Economic Review, Wiley, In press, 63 (1), pp.511-540. ⟨10.1111/iere.12537⟩. ⟨hal-03501381⟩

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