IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

U.S. inequality: Debt constraints or incomplete asset markets?

  • Cordoba, Juan-Carlos

To examine the role of debt constraints and incomplete asset markets (lack of insurance markets) in explaining U.S. inequality, we run horse races between competing models. For a widely used model, we decompose inequality into its fundamental driving forces. The underlying source of inequality in all models is uninsurable idiosyncratic risk. Both debt constraints and incomplete asset markets are needed to account for inequality, but asset market incompleteness is the key friction. It better accounts for the concentration and dispersion of wealth, and is the most costly friction in terms of welfare. Tight debt constraints are important for explaining the lower tail of the wealth distribution.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0304-3932(07)00151-1
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 55 (2008)
Issue (Month): 2 (March)
Pages: 350-364

as
in new window

Handle: RePEc:eee:moneco:v:55:y:2008:i:2:p:350-364
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Jonathan Heathcote, 2003. "The Macroeconomic Implications of Rising Wage Inequality in the United States," Working Papers gueconwpa~03-03-19, Georgetown University, Department of Economics.
  2. Mariacristina De Nardi, 2004. "Wealth Inequality and Intergenerational Links," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 743-768.
  3. Vincenzo Quadrini, 2000. "Entrepreneurship, Saving and Social Mobility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 1-40, January.
  4. David Domeij & Jonathan Heathcote, 2004. "On The Distributional Effects Of Reducing Capital Taxes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 523-554, 05.
  5. Lars Ljungqvist & Thomas J. Sargent, 2004. "Recursive Macroeconomic Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026212274x, June.
  6. John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
  7. Orazio Attanasio & Erich Battistin & Hidehiko Ichimura, 2004. "What Really Happened to Consumption Inequality in the US?," NBER Working Papers 10338, National Bureau of Economic Research, Inc.
  8. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 659-684.
  9. Córdoba, Juan Carlos & Verdier, Geneviève, 2008. "Inequality and growth: Some welfare calculations," Journal of Economic Dynamics and Control, Elsevier, vol. 32(6), pages 1812-1829, June.
  10. Glenn B. Canner & Arthur B. Kennickell & Charles A. Luckett, 1995. "Household sector borrowing and the burden of debt," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Apr, pages 323-338.
  11. Ana Castaneda & Javier Diaz-Gimenez & Jose-Victor Rios-Rull, 2003. "Accounting for the U.S. Earnings and Wealth Inequality," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 818-857, August.
  12. repec:oup:restud:v:73:y:2006:i:1:p:163-193 is not listed on IDEAS
  13. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
  14. John Heaton & Deborah Lucas, 1993. "Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing," NBER Working Papers 4249, National Bureau of Economic Research, Inc.
  15. Kehoe, Timothy J & Levine, David K, 2001. "Liquidity Constrained Markets versus Debt Constrained Markets," Econometrica, Econometric Society, vol. 69(3), pages 575-98, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:moneco:v:55:y:2008:i:2:p:350-364. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.