DP15934 Information and Wealth Heterogeneity in the Macroeconomy

Author(s): Tobias Broer, Alexandre Kohlhas, Kurt Mitman, Kathrin Schlafmann
Publication Date: March 2021
Keyword(s): Heterogenous information, incomplete markets, precautionary savings, unemployment
JEL(s): D84, E21, E27, E62
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15934

We document systematic differences in macroeconomic expectations across U.S. households and rationalize our findings with a theory of information choice. We embed this theory into an incomplete-markets model with aggregate risk. Our model is quantitatively consistent with the pattern of expectation heterogeneity in the data. Relative to a full-information counterpart, our model implies substantially increased macroeconomic volatility and inequality. We show through the example of a wealth tax that neglecting the information channel leads to erroneous conclusions about the effects of policies. While in the model without information choice a wealth tax reduces wealth inequality, in our framework it reduces information acquired in the economy, leading to increased volatility and higher wealth inequality in equilibrium.