A Practical Log-Linear Aggregation Method with Examples: Heterogeneous Income Growth in the USA

Pedro H. Albuquerque (1, 2)

1 Euromed Marseille - École de management
2 DEFI - Centre de recherche en développement économique et finance internationale

A practical aggregation method for heterogeneous log-linear functions is presented. Inequality measures are employed in the construction of a simple but exact aggregate representation of an economy. Three macroeconomic applications are discussed: the aggregation of the Lucas supply function, the time-inconsistent behaviour of an egalitarian social planner facing heterogeneous discount rates, and the case of a simple heterogeneous growth model. In the latter application, aggregate CPS data is used to show that the slowdown that followed the first oil shock is worse than usually thought, and that the "new economy" growth resurgence is not as strong as it appears.

Mots clés: Log-Linear Aggregation; Theil's Second Measure; Mean Logarithmic Deviation; Heterogeneous Growth; Inequality; Household Income

Domaines: Economies et finances

Pedro H. Albuquerque. A Practical Log-Linear Aggregation Method with Examples: Heterogeneous Income Growth in the USA. Journal of Applied Econometrics, 2003, 18 (6), pp.665-678. ⟨10.1002/jae.715⟩. ⟨halshs-00743830⟩