Intergenerational Redistribution in the Great Recession

The Great Recession saw sharp drops in labor earnings and even larger declines in asset prices. How were the welfare losses from these declines distributed across different age groups? To address this question we construct an overlapping-generations general equilibrium model in which households face large aggregate shocks. A calibrated version of the model replicates observed dynamics for asset prices. Younger households experience larger earnings losses in a model Great Recession, but benefit from being able to buy assets at temporarily depressed prices. As a result, the model predicts that the young experience smaller welfare losses than older cohorts.