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Asset prices and wealth inequality in a simple model with idiosyncratic shocks

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  • Sergio Salas

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Abstract

This paper analytically solves a heterogeneous agent model with idiosyncratic shocks to marginal utility of consumption and explores the effects of the borrowing constraint on the price of the asset, the composition of borrowers and lenders in the credit market, and wealth inequality. Results are derived in a stylized model and in a pedagogical fashion.

Suggested Citation

  • Sergio Salas, 2017. "Asset prices and wealth inequality in a simple model with idiosyncratic shocks," Estudios de Economia, University of Chile, Department of Economics, vol. 44(1 Year 20), pages 105-119, June.
  • Handle: RePEc:udc:esteco:v:44:y:2017:i:1:p:105-119
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    File URL: http://estudiosdeeconomia.uchile.cl/index.php/EDE/article/viewFile/45216/47278
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    References listed on IDEAS

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    1. Taub, B, 1988. "Efficiency in a Pure Currency Economy with Inflation," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 567-583, October.
    2. Andrew Atkeson & Robert E. Lucas, 1992. "On Efficient Distribution With Private Information," Review of Economic Studies, Oxford University Press, vol. 59(3), pages 427-453.
    3. Emmanuel Farhi & Iván Werning, 2007. "Inequality and Social Discounting," Journal of Political Economy, University of Chicago Press, vol. 115, pages 365-402.
    4. Lucas, Robert E, Jr, 1992. "On Efficiency and Distribution," Economic Journal, Royal Economic Society, vol. 102(411), pages 233-247, March.
    5. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 659-684.
    6. Krusell, Per & Mukoyama, Toshihiko & Smith Jr., Anthony A., 2011. "Asset prices in a Huggett economy," Journal of Economic Theory, Elsevier, vol. 146(3), pages 812-844, May.
    7. Wen, Yi, 2015. "Money, liquidity and welfare," European Economic Review, Elsevier, vol. 76(C), pages 1-24.
    8. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-220, April.
    9. Bewley, Truman, 1977. "The permanent income hypothesis: A theoretical formulation," Journal of Economic Theory, Elsevier, vol. 16(2), pages 252-292, December.
    10. Taub, Bart, 1994. "Currency and Credit Are Equivalent Mechanisms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 921-956, November.
    11. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
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    More about this item

    Keywords

    Asset prices; borrowing constraints; wealth inequality; heterogeneous agents;

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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