Wealth inequality, preference heterogeneity and macroeconomic volatility in two-sector economies |
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Authors: | Christian Ghiglino Alain Venditti |
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Affiliation: | a Department of Economics, Queen Mary University of London, Mile End Road, E1 4NS London, UK b Department of Economics, University of Bern, Schanzeneckstrasse 1, 3001 Bern, Switzerland c CNRS - GREQAM, Marseille, France |
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Abstract: | We explore the link between wealth inequality, preference heterogeneity and macroeconomic volatility in a two-sector neoclassical growth model. First we prove that, if agents have homogeneous preferences, when the absolute risk tolerance is a strictly convex (concave) function, sufficiently high (low) levels of wealth inequality may lead to endogenous fluctuations in the neighborhood of the steady state. Second, we consider the effects of preference heterogeneity when agents are homogeneous with respect to their wealth. We show that when the utility function belongs to the HARA class, sufficiently high levels of preference heterogeneity may lead to endogenous fluctuations in the neighborhood of the steady state if the elasticity of intertemporal substitution in consumption is greater than one. |
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Keywords: | D30 D50 D90 O41 |
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