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Increasing inequality, consumer credit and financial fragility in an agent based macroeconomic model

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  • Alberto Russo

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  • Luca Riccetti
  • Mauro Gallegati

Abstract

We investigate the interplay between increasing inequality and consumer credit in a complex macroeconomic system with financially fragile heterogeneous households, firms and banks. Simulation results show that there are pros and cons of introducing consumer credit: on the one hand, for a certain time, it leads to lower unemployment through boosting aggregate demand; on the other hand, it accelerates the system tendency to the crisis. Since the increase of financial profits goes with a decline of households’ real wealth, a policy trade-off emerges. Copyright Springer-Verlag Berlin Heidelberg 2016

Suggested Citation

  • Alberto Russo & Luca Riccetti & Mauro Gallegati, 2016. "Increasing inequality, consumer credit and financial fragility in an agent based macroeconomic model," Journal of Evolutionary Economics, Springer, vol. 26(1), pages 25-47, March.
  • Handle: RePEc:spr:joevec:v:26:y:2016:i:1:p:25-47
    DOI: 10.1007/s00191-015-0410-z
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    References listed on IDEAS

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    1. Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2011. "Top Incomes in the Long Run of History," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 3-71, March.
    2. Nicholas Kaldor, 1955. "Alternative Theories of Distribution," Review of Economic Studies, Oxford University Press, vol. 23(2), pages 83-100.
    3. Cristiano Perugini & Jens Hölscher & Simon Collie, 2016. "Inequality, credit and financial crises," Cambridge Journal of Economics, Oxford University Press, vol. 40(1), pages 227-257.
    4. Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Russo, Alberto & Stiglitz, Joseph E., 2010. "The financial accelerator in an evolving credit network," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1627-1650, September.
    5. van Treeck, Till. & Sturn, Simon., 2012. "Income inequality as a cause of the Great Recession? : A survey of current debates," ILO Working Papers 994709343402676, International Labour Organization.
    6. Riccetti, Luca & Russo, Alberto & Gallegati, Mauro, 2013. "Leveraged network-based financial accelerator," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1626-1640.
    7. Michael Kumhof & Romain Rancière & Pablo Winant, 2015. "Inequality, Leverage, and Crises," American Economic Review, American Economic Association, vol. 105(3), pages 1217-1245, March.
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    10. Luca Riccetti & Alberto Russo & Mauro Gallegati, 2015. "An agent based decentralized matching macroeconomic model," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(2), pages 305-332, October.
    11. Alberto Russo, 2014. "Elements of Novelty, Known Mechanisms, and the Fundamental Causes of the Recent Crisis," Journal of Economic Issues, Taylor & Francis Journals, vol. 48(3), pages 743-764.
    12. Yuriy Gorodnichenko & Marianna Kudlyak & John Mondragon & Olivier Coibion, 2014. "Does Greater Inequality Lead to More Household Borrowing? New Evidence from Household Data," 2014 Meeting Papers 402, Society for Economic Dynamics.
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    More about this item

    Keywords

    Consumer credit; Inequality; Agent-based macroeconomics; Business cycle; Profit rate; Crisis; Unemployment; C63; D31; E21; E32;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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