Wealth and Volatility

Heathcote, Jonathan; Perri, Fabrizio

doi:10.21034/sr.508

Cited by 14 publications

(21 citation statements)

References 31 publications

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“…First, the power law arises due to the effects of business cycle implying that inequality in cross-section can be affected at business cycle frequencies. [21] documents that in U.S. mean wealth is negatively correlated with macroeconomic volatility. One can argue that the changes in mean wealth is also accompanied by redistribution of purchasing power affecting inequality, thus corroborating the prior implication.…”

Section: Discussion and Summarymentioning

confidence: 99%

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Quantifying invariant features of within-group inequality in consumption across groups

Chakrabarti¹,

Chatterjee

Nandi

et al. 2017

J Econ Interact Coord

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We study unit-level expenditure on consumption across multiple countries and multiple years, in order to extract invariant features of consumption distribution. We show that the bulk of it is lognormally distributed, followed by a power law tail at the limit. The distributions coincide with each other under normalization by mean expenditure and log scaling even though the data is sampled across multiple dimension including, e.g., time, social structure and locations. This phenomenon indicates that the dispersions in consumption expenditure across various social and economic groups are significantly similar subject to suitable scaling and normalization. Further, the results provide a measurement of the core distributional features. Other descriptive factors including those of sociological, demographic and political nature, add further layers of variation on the this core distribution. We present a stochastic multiplicative model to quantitatively characterize the invariance and the distributional features.

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Section: Discussion and Summarymentioning

confidence: 99%

“…Business cycle can be taken to be an exogenous factor as usually it affects inequality and the converse is unlikely. Thus due to the business cycle inequality might wax and wane ( [21]). …”

Section: We Can Decompose the Income As The Sum Of A Trend Component mentioning

confidence: 99%

Quantifying invariant features of within-group inequality in consumption across groups

Chakrabarti¹,

Chatterjee

Nandi

et al. 2017

J Econ Interact Coord

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“…Equation (21) links the current financial state A T 2 to the choices of current consumption and of asset accumulation, as embodied in equations (19) and (20).…”

Section: Equilibrium Confidencementioning

confidence: 99%

“…The model of Heathcote and Perri (2015) shares the feature that an economy is more vulnerable to crises of confidence if wealth is low. Their economic mechanism relies on self-fulfilling expectations about unemployment which determine the demand of households.…”

Section: Introductionmentioning

confidence: 99%

Household Debt and Crises of Confidence

Hintermaier

Koeniger

2015

SSRN Journal

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We show that the size of collateralized household debt determines an economy's vulnerability to crises of confidence. The house price feeds back on itself by contributing to a liquidity effect, which operates through the value of housing in a collateral constraint. Over a specific range of debt levels this liquidity feedback effect is strong enough to give rise to multiplicity of house prices. In a dynamic setup, we conceptualize confidence as a realization of rationally entertainable belief-weightings of multiple future prices. This delivers debt-level-dependent bounds on the extent to which confidence may drive house prices and aggregate consumption.

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“…Bacchetta, Tille, and Van Wincoop (2012) show that volatility in asset prices can be self-fulfilling when investors are risk averse. Heathcote and Perri (2015) and Ravn and Sterk (2017) study the feedback between unemployment risk and self-insurance motives of savers in models with nominal rigidities. See also Broner and Ventura (2016) for an application to cross-borders capital flows.…”

Section: Introductionmentioning

confidence: 99%