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Wealth distribution and asset prices

Author

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  • Dan Cao

    (Georgetown University)

  • Jinhui Bai

    (Georgetown University)

Abstract

We propose a model that explains the relationship between wealth distribution and asset prices over the business cycles. The model features an economy with a continuum of agents and with both idiosyncratic and aggregate shock a la Krusell and Smith (1998). However, we allow agents to trade in a long-lived asset in addition to in-contingent bonds. We develop a numerical method to calculate wealth-recursive equilibrium in the economy and apply the method to examine quantitatively the relationship between wealth distribution and asset prices in the U.S. economy.

Suggested Citation

  • Dan Cao & Jinhui Bai, 2014. "Wealth distribution and asset prices," 2014 Meeting Papers 1150, Society for Economic Dynamics.
  • Handle: RePEc:red:sed014:1150
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