Inequality and Macroeconomics

University of Toronto, 2021 Winter




 Teaching Assistant

Course Description

Macroeconomics and inequality are a two-way street: Macroeconomic shocks and policies affect inequality and inequality affects macroeconomic aggregates. In this course we explore this rich interaction between inequality and the macroeconomy that characterizes our world. The goal is to introduce the frameworks (heterogenous agents models) for thinking about this interaction. At the core of these frameworks there will be a distribution of households that differ in wealth, productivity, and consumption-savings behavior. These models will be micro-founded, i.e., we will model macroeconomic aggregates as consequences of optimizing individual decisions. We will also test the predictions of these models with the data. The types of questions we will study include: What is the role of household heterogeneity in the transmission of monetary and fiscal policy? What are the distributional macroeconomic effects of Covid-19 pandemic? How do government policies affect inequality? 

This is an advanced undergraduate course in macroeconomics. Thus, an intermediate level macroeconomic theory course is prerequisite. We will also use the language of mathematics to write down our models. A fair amount of knowledge of (dynamic) optimization techniques is also required. We will also get our hands dirty with micro-datasets and solving the models computationally. 

Remote Learners

If you are a citizen of another country, and/or accessing your courses at  the University of Toronto from a jurisdiction outside of Canada, please note that you may be subject to the laws of the country in which you are residing, or any country of which you have citizenship. The University of Toronto has a long-established commitment to freedom of expression, with this right enabled by an environment valuing respect, diversity, and inclusion. In your classes, you may be assigned readings, or discuss topics that are against the law in other jurisdictions. I encourage you to become familiar with any local laws that may apply to you and any potential impact on you if course content and information could be considered illegal, controversial, or politically sensitive. If you have any concerns about these issues, please contact me directly to discuss with them.

Textbooks and Papers

Unfortunately, there does not exist a textbook with the proper level and focus for this course. Instead, I will rely on journal articles and my own slides, for which I will benefit from teaching material of Greg Kaplan. There are a number of review articles that summarize the academic literature on heterogeneous agent macroeconomics that you will find useful: 


Class Schedule, Reading List and Slides 

Week #1: Introduction and Why Should We Care About Inequality in Macroeconomics?

Weeks #2 and #3: Trends in Earnings Inequality

Weeks #4 & 5: Decline in Labor Share

Weeks #5, #7,  & #8: Lifecycle Income Inequality

Week #6: Midterm exam

Weeks #8, #9, & #10: Wealth Inequality and Permanent Income Hypothesis

Weeks #11 & #12: Standard Incomplete Market Models