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

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  • 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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  • Ghiglino, Christian & Venditti, Alain, 2007. "Wealth inequality, preference heterogeneity and macroeconomic volatility in two-sector economies," Journal of Economic Theory, Elsevier, vol. 135(1), pages 414-441, July.
  • Handle: RePEc:eee:jetheo:v:135:y:2007:i:1:p:414-441
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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. Kazuo Mino, 2017. "Sunspot-Driven Business Cycles: An Overview," KIER Working Papers 973, Kyoto University, Institute of Economic Research.
    3. 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.
    4. Thomas Gall & Paolo Masella, 2012. "Markets and jungles," Journal of Economic Growth, Springer, vol. 17(2), pages 103-141, June.
    5. Ghiglino, Christian & Venditti, Alain, 2011. "Wealth distribution and output fluctuations," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2478-2509.
    6. Suen, Richard M. H., 2011. "Concave consumption function and precautionary wealth accumulation," MPRA Paper 34774, University Library of Munich, Germany.

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