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Wealth inequality, preference heterogeneity and macroeconomic volatility intwo-sector economies

Author

Listed:
  • Alain Venditti
  • Christian Ghiglino

    (Department of Economics, University of Essex - University of Essex)

Abstract

Weexplore the link between wealth inequality, preference heterogeneity and macroeconomicvolatility in a two-sector neoclassical growth model. First we prove that, if agents havehomogeneous preferences, when the absolute risk tolerance is a strictly convex (concave) function, sufficiently high (low) levels of wealthinequalitymay lead to endogenous fluctuations in the neighborhood of the steady state. Second, we consider the effects of preference heterogeneity whenagents are homogeneous with respect to their wealth. We show that when the utility functionbelongs to the HARA class, sufficiently high levels of preference heterogeneitymay lead to endogenous fluctuations in the neighborhood of the steady state if theelasticity of intertemporal substitution in consumption is greater than one.

Suggested Citation

  • Alain Venditti & Christian Ghiglino, 2007. "Wealth inequality, preference heterogeneity and macroeconomic volatility intwo-sector economies," Post-Print halshs-00279997, HAL.
    • Handle: RePEc:hal:journl:halshs-00279997
    DOI: 10.1016/j.jet.2006.05.008
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    References listed on IDEAS

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    1. K. Nishimura & H. Takahashi & A. Venditti, 2006. "Endogenous Fluctuations in Two-Sector Models: Role of Preferences," Journal of Optimization Theory and Applications, Springer, vol. 128(2), pages 309-331, February.
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    6. Mitra, Tapan & Nishimura, Kazuo, 2001. "Discounting and Long-Run Behavior: Global Bifurcation Analysis of a Family of Dynamical Systems," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 256-293, January.
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    Cited by:

    1. Bosi, Stefano & Seegmuller, Thomas, 2008. "Can heterogeneous preferences stabilize endogenous fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 32(2), pages 624-647, February.
    2. Thomas Gall & Paolo Masella, 2012. "Markets and jungles," Journal of Economic Growth, Springer, vol. 17(2), pages 103-141, June.
    3. Ghiglino, Christian & Venditti, Alain, 2011. "Wealth distribution and output fluctuations," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2478-2509.
    4. Suen, Richard M. H., 2011. "Concave consumption function and precautionary wealth accumulation," MPRA Paper 34774, University Library of Munich, Germany.
    5. Kazuo Nishimura & Alain Venditti & Makoto Yano, 2014. "Destabilization effect of international trade in a perfect foresight dynamic general equilibrium model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(2), pages 357-392, February.
    6. Kazuo Mino, 2017. "Sunspot-Driven Business Cycles: An Overview," KIER Working Papers 973, Kyoto University, Institute of Economic Research.
    7. Christian Ghiglino & Alain Venditti, 2008. "The role of the wealth distribution on output volatility," Working Papers halshs-00281379, HAL.

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