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A Note on Income Inequality and Macro-economic Volatility



Income inequality may influence macro-economic variables by affecting the money multiplier and the trade-off between inflation and output. In an AD-AS model with imperfect foresight income inequality intensifies the volatility of output and inflation rate by increasing the likelihood of oscillations as well as their magnitude. Volatility is, however, moderated when income inequality prolongs the business cycles.

Suggested Citation

  • Levy, A., 2000. "A Note on Income Inequality and Macro-economic Volatility," Economics Working Papers wp00-08, School of Economics, University of Wollongong, NSW, Australia.
  • Handle: RePEc:uow:depec1:wp00-08

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    References listed on IDEAS

    1. Alesina, Alberto & Perotti, Roberto, 1996. "Income distribution, political instability, and investment," European Economic Review, Elsevier, vol. 40(6), pages 1203-1228, June.
    2. Cecilia Garcia-Penalosa & Eve Caroli & Philippe Aghion, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1615-1660, December.
    3. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
    4. repec:dau:papers:123456789/10091 is not listed on IDEAS
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    Rational eating; cycles;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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