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Wealth inequality, preference heterogeneity and macroeconomic volatility in two-sector economies

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Listed author(s):
  • Ghiglino, Christian
  • Venditti, Alain

Abstract

Weexplore the link between wealth inequality, preference heterogeneity and macroeconomicvolatility in a two-sector neoclassical growth model. First we prove that, if agents havehomogeneous preferences, when the absolute risk tolerance is a strictly convex (concave) function, sufficiently high (low) levels of wealthinequalitymay lead to endogenous fluctuations in the neighborhood of the steady state. Second, we consider the effects of preference heterogeneity whenagents are homogeneous with respect to their wealth. We show that when the utility functionbelongs to the HARA class, sufficiently high levels of preference heterogeneitymay lead to endogenous fluctuations in the neighborhood of the steady state if theelasticity of intertemporal substitution in consumption is greater than one.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 135 (2007)
Issue (Month): 1 (July)
Pages: 414-441

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Handle: RePEc:eee:jetheo:v:135:y:2007:i:1:p:414-441
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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Cited by:

  1. Bosi, Stefano & Seegmuller, Thomas, 2008. "Can heterogeneous preferences stabilize endogenous fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 32(2), pages 624-647, February.
  2. Thomas Gall & Paolo Masella, 2012. "Markets and jungles," Journal of Economic Growth, Springer, vol. 17(2), pages 103-141, June.
  3. Ghiglino, Christian & Venditti, Alain, 2011. "Wealth distribution and output fluctuations," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2478-2509.
  4. Suen, Richard M. H., 2011. "Concave consumption function and precautionary wealth accumulation," MPRA Paper 34774, University Library of Munich, Germany.
  5. repec:esx:essedp:653 is not listed on IDEAS
  6. Kazuo Nishimura & Alain Venditti & Makoto Yano, 2014. "Destabilization effect of international trade in a perfect foresight dynamic general equilibrium model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(2), pages 357-392, February.

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