Carroll, Christopher D.; Slacalek, Jiri; Tokuoka, Kiichi - European Central Bank - 2014
A large body of microeconomic evidence supports Friedman (1957)'s proposition that household income can be reasonably well described as having both transitory and permanent components. We show how to modify the widely-used macroeconomic model of Krusell and Smith (1998) to accommodate such a...
