Heterogeneity and redistribution in financial crises
This paper uses a simple heterogeneous-agent economy model to show that redistribution of wealth among heterogeneous agents can play a significant role in business cycle dynamics and financial crises. In an economy where firms with heterogeneous productivity operate under borrowing constraints, redistribution of wealth reproduces the key features of business cycle fluctuations such as persistence and nonlinearity in output and labor, and procyclicality in observed productivity. This model suggests the hypothesis that a redistribution shock may be one of the key driving forces of business cycles. The aggregate variables exhibit strong nonlinearity in both our model and the standard model: however, while the behavior of individual agents does not involve nonlinearity in our model, strong nonlinearity is assumed in the standard model.
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.:
- Andrea Pescatori & Murat Tasci, 2011.
"Search frictions and the labor wedge,"
1111, Federal Reserve Bank of Cleveland.
- Murat Tasci & Andrea Pescatori, 2011. "Search Frictions and the Labor Wedge," 2011 Meeting Papers 371, Society for Economic Dynamics.
- Murat Tasci & Andrea Pescatori, 2011. "Search Frictions and the Labor Wedge," IMF Working Papers 11/117, .
- Andrea Pescatori & Murat Tasci, 2011. "Search Frictions and the Labor Wedge," Koç University-TUSIAD Economic Research Forum Working Papers 1113, Koc University-TUSIAD Economic Research Forum.
- Keiichiro Kobayashi & Masaru Inaba, 2005.
"Business Cycle Accounting for the Japanese Economy,"
05023, Research Institute of Economy, Trade and Industry (RIETI).
- Kobayashi, Keiichiro & Inaba, Masaru, 2006. "Business cycle accounting for the Japanese economy," Japan and the World Economy, Elsevier, vol. 18(4), pages 418-440, December.
- Keiichiro Kobayashi & Masaru Inaba, 2006. "Business cycle accounting for the Japanese economy," 2006 Meeting Papers 313, Society for Economic Dynamics.
- Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
- Enrique G. Mendoza, 2010. "Sudden Stops, Financial Crises, and Leverage," American Economic Review, American Economic Association, vol. 100(5), pages 1941-1966, December.
- Timothy J. Kehoe & Edward C. Prescott(), 2007.
"Great depressions of the twentieth century,"
Federal Reserve Bank of Minneapolis, number 2007gdott.
- Robert Shimer, 2009. "Convergence in Macroeconomics: The Labor Wedge," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 280-297, January.
- Timothy Kehoe & Edward Prescott, 2002.
"Data Appendix to Great Depressions of the Twentieth Century,"
kehoe02, Review of Economic Dynamics.
When requesting a correction, please mention this item's handle: RePEc:cnn:wpaper:14-004e. 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: (The Canon Institute for Global Studies)
If references are entirely missing, you can add them using this form.