TY - JOUR AU - Glover,Andrew AU - Heathcote,Jonathan AU - Krueger,Dirk AU - Ríos-Rull,José-Víctor TI - Intergenerational Redistribution in the Great Recession JF - National Bureau of Economic Research Working Paper Series VL - No. 16924 PY - 2011 Y2 - April 2011 UR - http://www.nber.org/papers/w16924 L1 - http://www.nber.org/papers/w16924.pdf N1 - Author contact info: Andrew Glover Department of Economics University of Texas at Austin E-Mail: andyecon@gmail.com Jonathan Heathcote Federal Reserve Bank of Minneapolis Research Department 90 Hennepin Ave. Minneapolis, MN 55401 Tel: (612) 204-6385 E-Mail: heathcote@minneapolisfed.org Dirk Krueger Economics Department University of Pennsylvania 160 McNeil Building 3718 Locust Walk Philadelphia, PA 19104 Tel: 215/898-6691 Fax: 215/573-2057 E-Mail: dkrueger@econ.upenn.edu Jose-Victor Rios-Rull University of Minnesota Department of Economics 4-101 Hanson Hall (off 4-179) 1925 Fourth Street South Minneapolis, MN 55455 Tel: (612) 625-0941 Fax: (612) 624-0209 E-Mail: vr0j@umn.edu AB - In this paper we construct a stochastic overlapping-generations general equilibrium model in which households are subject to aggregate shocks that affect both wages and asset prices. We use a calibrated version of the model to quantify how the welfare costs of severe recessions are distributed across different household age groups. The model predicts that younger cohorts fare better than older cohorts when the equilibrium decline in asset prices is large relative to the decline in wages, as observed in the data. Asset price declines hurt the old, who rely on asset sales to finance consumption, but benefit the young, who purchase assets at depressed prices. In our preferred calibration, asset prices decline more than twice as much as wages, consistent with the experience of the US economy in the Great Recession. A model recession is approximately welfare-neutral for households in the 20-29 age group, but translates into a large welfare loss of around 10% of lifetime consumption for households aged 70 and over. ER -