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A Quantitative Theory of Heterogeneous Returns to Wealth

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Listed:
  • Guido Menzio
  • Saverio Spinella

Abstract

Recent empirical evidence documents that different individuals earn systematically different rates of return, even after controlling for portfolio composition. We propose a general equilibrium theory of residual heterogeneity in rates of return on wealth by embedding a financial market with search frictions into a monetary incomplete-market model. We show that the distribution of rates of return offered in the financial market is endogenous and depends on the marginal product of capital, the return on fiat money, and the joint distribution of households across wealth and financial human capital. When calibrated, the model succeeds in reproducing the extent of residual dispersion in returns to wealth across individuals. We use the calibrated model to study various policies and counterfactuals, with a particular focus on monetary policy.

Suggested Citation

  • Guido Menzio & Saverio Spinella, 2025. "A Quantitative Theory of Heterogeneous Returns to Wealth," NBER Working Papers 33868, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33868
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    More about this item

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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