Prior to the financial crisis, these so-called representative-agent models were the dominant paradigm for analyzing many macroeconomic questions. However, a disaggregated approach seems needed to understand some key aspects of the Great Recession.. . .
More generally, studying the effects of household and firm heterogeneity might help us better account for the severity of the recession and the slow recovery.
Pointer from Mark Thoma.
You might have to go much farther than Yellen has in mind in thinking in terms of heterogeneity of firms, workers, and households. At some point, it ceases to be macro.
And there is this:
the influence of labor market conditions on inflation in recent years seems to be weaker than had been commonly thought prior to the financial crisis. Although inflation fell during the recession, the decline was quite modest given how high unemployment rose; likewise, wages and prices rose comparatively little as the labor market gradually recovered.
I disagree with the standard models of inflation, including the monetarist model. Specialization and Trade offers my answers to all of Ms. Yellen’s questions.