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Wealth inequality, preference heterogeneity and macroeconomic volatility intwo-sector economies

Author

Listed:
  • Alain Venditti
  • Christian Ghiglino

    (Department of Economics, University of Essex - University of Essex)

Abstract

Weexplore the link between wealth inequality, preference heterogeneity and macroeconomicvolatility in a two-sector neoclassical growth model. First we prove that, if agents havehomogeneous preferences, when the absolute risk tolerance is a strictly convex (concave) function, sufficiently high (low) levels of wealthinequalitymay lead to endogenous fluctuations in the neighborhood of the steady state. Second, we consider the effects of preference heterogeneity whenagents are homogeneous with respect to their wealth. We show that when the utility functionbelongs to the HARA class, sufficiently high levels of preference heterogeneitymay lead to endogenous fluctuations in the neighborhood of the steady state if theelasticity of intertemporal substitution in consumption is greater than one.

Suggested Citation

  • Alain Venditti & Christian Ghiglino, 2007. "Wealth inequality, preference heterogeneity and macroeconomic volatility intwo-sector economies," Post-Print halshs-00279997, HAL.
    • Handle: RePEc:hal:journl:halshs-00279997
    DOI: 10.1016/j.jet.2006.05.008
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    Cited by:

    1. Bosi, Stefano & Seegmuller, Thomas, 2008. "Can heterogeneous preferences stabilize endogenous fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 32(2), pages 624-647, February.
    2. Suen, Richard M. H., 2011. "Concave consumption function and precautionary wealth accumulation," MPRA Paper 34774, University Library of Munich, Germany.
    3. Kazuo Nishimura & Alain Venditti & Makoto Yano, 2014. "Destabilization effect of international trade in a perfect foresight dynamic general equilibrium model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(2), pages 357-392, February.
    4. Kazuo Mino, 2017. "Sunspot-Driven Business Cycles: An Overview," KIER Working Papers 973, Kyoto University, Institute of Economic Research.
    5. Thomas Gall & Paolo Masella, 2012. "Markets and jungles," Journal of Economic Growth, Springer, vol. 17(2), pages 103-141, June.
    6. Ghiglino, Christian & Venditti, Alain, 2011. "Wealth distribution and output fluctuations," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2478-2509.
    7. Runze Yuan & Xi Xi & Yifan Zhang & Zhentao Liu & Chao Li & Yu Liang, 2024. "Optimal Growths from Two Perspectives, with Conditional Macro- and Micro-consistency: Dynamic Summation of Economic Variables Under Differential Regional Representative Production Functions," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 8737-8766, June.
    8. Christian Ghiglino & Alain Venditti, 2008. "The role of the wealth distribution on output volatility," Working Papers halshs-00281379, HAL.

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