  We provide an explicit aggregation in the neoclassical growth model with
aggregate shocks and uninsurable employment risk. We show there are two
restrictions on the unemployment shock for approximate aggregation to occur.
First the probability of unemployment must be positive for each agent in each
time period. That ensures a strong precautionary savings motive. Second, we
must have like agents having similar future prospects. That is agents with
similar employment status and wealth must have similar employment paths. The
solution of the model must have distribution of wealth as a state variable and
hence the curse of dimensionality must be confronted. We sidestep this thorny
issue by introducing a Walrassian auctioneer that communicates the optimal
amount of invested in every period for every outcome of the shocks to the
agents.
