| dc.description.abstract | Macroeconomic shocks significantly impact inequality because households react differently depending on their wealth, income, and occupation. These heterogeneous responses influence macroeconomic outcomes because they feed back into the larger economy. Traditionally, the macroeconomic literature has primarily focused on how these shocks affect aggregate dynamics, but its interactions with inequality are still largely unexplored. This dissertation investigates how various dimensions of heterogeneity affect inequality and how those interact with macroeconomic outcomes. The second chapter quantifies the importance of heterogeneity across entrepreneurs in accounting for aggregate and distributional dynamics during sudden stops. Using Argentinian household survey data from 1996 to 2003, I establish that the income distribution of entrepreneurs widened relative to that of workers. Motivated by this, I develop a small open-economy, heterogeneous-agent model with occupational choice. The model rationalizes aggregate and distributional features of sudden stops that standard models cannot. The third chapter studies how the regional heterogeneity from production specialization led to unequal outcomes during the Great Depression. This chapter documents that states like Michigan specialized in durable goods production while states like Arkansas specialized in agricultural production. Motivated by this fact, the third chapter develops a multi-region, multi-sector model with different degrees of specialization across regions. We find that production specialization of tradable sectors help rationalize the dispersion of income losses across regions. The fourth chapter evaluates the aggregate and distributional consequences of a monetary union. Using a two-sector heterogeneous-agent New Keynesian model, the paper argues that exchange rate devaluations during recessions dampen output loss but amplify the rise in consumption and wealth inequalities. Altogether, my dissertation emphasizes the need to account for the microeconomic heterogeneity to capture distributional and aggregate dynamics and make better-informed policy decisions. | |
