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Inequality and Financial Markets - A Simulation Approach in a Heterogeneous Agent Model

In: Managing Market Complexity

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  • Thomas Fischer

    (TU Darmstadt)

Abstract

This paper presents a dynamic model with N heterogeneous consumers in the presence of financial markets allowing for saving and lending. Instead of adjusting their consumption based on utility maximization, agents use heuristics as suggested by behavioral theory. The main result of the model is that increased income inequality transforms into increased net worth inequality leading to increased price volatility on the market for durables. Unequal societies moreover are characterized by a current account surplus resulting from strong savings. Price volatility also increases if we increase heritage defined as the ratio of stock level of initial endowment to annual income. Medium size heritage on the other side increases the number of middle class households leading to a balanced current account. Extreme low or extreme high values for heritage contribute to a net debt situation with foreigners

Suggested Citation

  • Thomas Fischer, 2012. "Inequality and Financial Markets - A Simulation Approach in a Heterogeneous Agent Model," Lecture Notes in Economics and Mathematical Systems, in: Andrea Teglio & Simone Alfarano & Eva Camacho-Cuena & Miguel Ginés-Vilar (ed.), Managing Market Complexity, edition 127, chapter 0, pages 79-90, Springer.
    • Handle: RePEc:spr:lnechp:978-3-642-31301-1_7
    DOI: 10.1007/978-3-642-31301-1_7
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    Cited by:

    1. Alberto Cardaci & Francesco Saraceno, 2019. "Inequality and imbalances: a monetary union agent-based model," Journal of Evolutionary Economics, Springer, vol. 29(3), pages 853-890, July.
    2. Thomas Fischer, 2017. "Can Redistribution by Means of a Progressive Labor Income-Taxation Transfer System Increase Financial Stability?," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 20(2), pages 1-3.
    3. repec:spo:wpmain:info:hdl:2441/6h4m03fi1i9olbq081sgh502mt is not listed on IDEAS
    4. Alberto Cardaci & Francesco Saraceno, 2019. "Between Scylla And Charybdis: Income Distribution, Consumer Credit, And Business Cycles," Economic Inquiry, Western Economic Association International, vol. 57(2), pages 953-971, April.
    5. Nadja König, 2016. "Household Debt and Macrodynamics - How do Income Distribution and Insolvency Regulations interact?," Macroeconomics and Finance Series 201603, University of Hamburg, Department of Socioeconomics.

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