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Falling Behind: Has Rising Inequality Fueled the American Debt Boom?

Author

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  • Moritz Drechsel-Grau

    (University of Mannheim)

  • Fabian Greimel

    (University of Mannheim)

Abstract

We investigate the prevailing view that unequal growth combined with social comparisons have driven the boom of US household debt in the decades before the Great Recession. Thereby, non-rich households try to keep up with the rising living standards of the rich. We first develop a tractable infinite-horizon consumption network model in order to illustrate the mechanism analytically. We then introduce social comparisons into a heterogeneous agents macroeconomic model with housing and heterogeneous income profiles for a quantitative analysis.

Suggested Citation

  • Moritz Drechsel-Grau & Fabian Greimel, 2018. "Falling Behind: Has Rising Inequality Fueled the American Debt Boom?," 2018 Meeting Papers 1032, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:1032
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