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.