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

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  • Fischer, Thomas

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
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

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  • Fischer, Thomas, 2013. "Inequality and Financial Markets – A Simulation Approach in a Heterogeneous Agent Model," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 77241, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    • Handle: RePEc:dar:wpaper:77241
    Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/77241/
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    1. Michael Kumhof & Romain Rancière & Pablo Winant, 2015. "Inequality, Leverage, and Crises," American Economic Review, American Economic Association, vol. 105(3), pages 1217-1245, March.
    2. Cowell, F.A., 2000. "Measurement of inequality," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 2, pages 87-166, Elsevier.
    3. Maurice Obstfeld & Kenneth S. Rogoff, 2009. "Global imbalances and the financial crisis: products of common causes," Proceedings, Federal Reserve Bank of San Francisco, pages 131-172.
    4. Davies, James B. & Shorrocks, Anthony F., 2000. "The distribution of wealth," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 11, pages 605-675, Elsevier.
    5. Rogoff, Kenneth & Obstfeld, Maurice, 2009. "Global Imbalances and the Financial Crisis: Products of Common Causes," CEPR Discussion Papers 7606, C.E.P.R. Discussion Papers.
    6. A.B. Atkinson & F. Bourguignon (ed.), 2000. "Handbook of Income Distribution," Handbook of Income Distribution, Elsevier, edition 1, volume 1, number 1.
    7. Mr. Romain Ranciere & Mr. Nathaniel A. Throckmorton & Mr. Michael Kumhof & Ms. Claire Lebarz & Mr. Alexander W. Richter, 2012. "Income Inequality and Current Account Imbalances," IMF Working Papers 2012/008, International Monetary Fund.
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    Cited by:

    1. 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.
    2. 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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