@article{EES2024, author = {Egger, Peter and Erhardt, Katharina and Suverato, Davide}, title = {{How Aggregate Uncertainty Shapes the Spatial Economy}}, type = {CEPR Discussion Paper}, institution={CEPR}, number = {No. 19016}, pages = {ISSN 0265-8003, CEPR Press, Paris and London}, year = {2024}, URL = {https://cepr.org/publications/dp19016}, abstract = {This paper develops a dynamic spatial general equilibrium model of a multi-region multi-sector open economy where heterogeneous agents choose optimally their job, making forward-looking decisions under aggregate uncertainty. We solve the system of individual dynamic optimal-control problems under rational expectations as a Mean Field Game, in discrete time and state space, preserving the full non-linear structure of the problem. With a calibration for France, we demonstrate that households behave substantially differently between uncertainty and perfect foresight. Uncertainty alters the patterns of labor reallocation in transition as well as in the long run.}, }