TY  - JOUR
AU  - Chang,Yongsung
AU  - Kim,Sun-Bin
AU  - Schorfheide,Frank
TI  - Labor-Market Heterogeneity, Aggregation, and the Lucas Critique
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16401
PY  - 2010
Y2  - September 2010
UR  - http://www.nber.org/papers/w16401
L1  - http://www.nber.org/papers/w16401.pdf
N1  - Author contact info:
Yongsung Chang
Department of Economics
University of Rochester
Rochester, NY 14627
Tel: 1-585-275-1871
Fax: 1-585-256-2309
E-Mail: ychang14@mail.rochester.edu

Sun-Bin Kim
Department of Economics
Yonsei University
134 Shinchon-dong Seodaemoon-gu
Seoul Korea, 120-749
Tel: 82-2-2123-2467
E-Mail: sunbin.kim@yonsei.ac.kr

Frank Schorfheide
University of Pennsylvania
Department of Economics
3718 Locust Walk
Philadelphia, PA 19104-6297
Tel: 215/898-8486
Fax: 215/573-2057
E-Mail: schorf@ssc.upenn.edu
AB  - This paper assesses biases in policy predictions due to the lack of invariance of "structural'' parameters in representative-agent models. We simulate data under various fiscal policy regimes from a heterogeneous-agents economy with incomplete asset markets and indivisible labor supply. Imperfect aggregation manifests itself through preference shocks in the estimated representative-agent model. Preference and technology parameter estimates are not invariant with respect to policy changes. As a result, the bias in the representative-agent model's policy predictions is large compared to the length of predictive intervals that reflect parameter uncertainty.
ER  -