Distribution movements, macroeconomic regularities and the representative consumer

Abstract

The behaviour of agents and the distribution of agents play equivalent and joint roles in determining macroeconomic relationships. A general characterization of the joint restrictions on preferences and distributions of consumers that rationalize a representative consumer is provided. Linear Engel curves and social welfare maximizing income distributions are shown to be polar examples of this general characterization. Joint restrictions that lie between these extremes, employing regularities in both consumers' preferences and the distribution of income, can explain the empirical observation that macroeconomic demands resemble a non-linear representative consumer. Similar joint regularities in behaviour and distributions are likely to account for many observed macroeconomic regularities.