Accounting for household heterogeneity in dynamic general equilibrium models

Accounting for demographic heterogeneity in the general equilibrium framework leads to solving separate optimization problem for several consumer groups with different characteristics. In the present paper, an aggregation method of consumer characteristics is proposed that allows to take into account time variations in the preference coefficients and labor productivity. The method is applied to a particular type of models that are used to assess energy demand. We show that demand of the single population group that has averaged characteristics of the whole population is in good agreement with total demand of several different consumer groups. Thus, our method allows to extend the scope of application for the representative consumer approach to a wide class of multisector models with heterogeneous consumer characteristics that can change over time.