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Heterogeneity And Redistribution In Financial Crises

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  • Kobayashi, Keiichiro
  • Shirai, Daichi

Abstract

This paper presents a simple model of an economy with heterogeneous agents to show that the redistribution of wealth among such agents can play a significant role in the propagation mechanism of financial crises. In an economy where firms with heterogeneous productivity operate under borrowing constraints, the redistribution reproduces hump-shaped responses for output and labor and procyclicality in observed productivity. In this model, a financial shock generates a persistent and hump-shaped response, whereas a productivity shock does not. Further, the redistribution of wealth significantly amplifies the persistence and hump shape of these responses following a financial shock. This model suggests that redistribution may thus be a key driving force behind the transmission of financial crises.

Suggested Citation

  • Kobayashi, Keiichiro & Shirai, Daichi, 2016. "Heterogeneity And Redistribution In Financial Crises," Macroeconomic Dynamics, Cambridge University Press, vol. 20(6), pages 1527-1549, September.
    • Handle: RePEc:cup:macdyn:v:20:y:2016:i:06:p:1527-1549_00
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    Cited by:

    1. Shirai, Daichi, 2016. "Persistence and Amplification of Financial Frictions," MPRA Paper 72187, University Library of Munich, Germany.
    2. Keiichiro Kobayashi & Daichi Shirai, 2012. "Debt-Ridden Borrowers and Productivity Slowdown," CIGS Working Paper Series 14-005E, The Canon Institute for Global Studies.
    3. Daichi Shirai, 2014. "A note on hump-shaped output in the RBC model," CIGS Working Paper Series 14-009E, The Canon Institute for Global Studies.
    4. Keiichiro Kobayashi & Daichi Shirai, 2017. "Debt-Ridden Borrowers and Economic Slowdown," CIGS Working Paper Series 17-002E, The Canon Institute for Global Studies.

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