Skip to main content

Quantitative Macroeconomics with Heterogeneous Households

Staff Report 420 | Published February 5, 2009

Download PDF


Giovanni L. Violante Princeton University, CEBI, CEPR, IFS, IZA, and NBER
Jonathan Heathcote Monetary Advisor
Kjetil Storesletten Visiting Scholar
Quantitative Macroeconomics with Heterogeneous Households


Macroeconomics is evolving from the study of aggregate dynamics to the study of the dynamics of the entire equilibrium distribution of allocations across individual economic actors. This article reviews the quantitative macroeconomic literature that focuses on household heterogeneity, with a special emphasis on the “standard” incomplete markets model. We organize the vast literature according to three themes that are central to understanding how inequality matters for macroeconomics. First, what are the most important sources of individual risk and cross-sectional heterogeneity? Second, what are individuals’ key channels of insurance? Third, how does idiosyncratic risk interact with aggregate risk?

Published in: _Annual Review of Economics_ (Vol. 1, No. 1, 2009, pp. 315-354)