Douglas Clement - Editor, The Region
Published June 1, 2009 | June 2009 issue
■ Economists have long used “representative agents” to analyze the macroeconomy, essentially assuming that everyone was average. While these models are useful for some purposes, they don’t allow economists to understand key distributional issues.
■ In recent years, aided by more powerful computers and mathematics, economists have developed macroeconomic models with “heterogeneous agents”—economic actors that vary.
■ In a comprehensive article, three economists review a growing literature on heterogeneous agent models, research that examines different sources of risk, different avenues of insurance and novel outcomes to classic macroeconomic questions such as the cost of business cycles and the cause of the equity premium.