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Inequality and Imbalances: a Monetary Union Agent-Based Model

Author

Listed:
  • Alberto Cardaci
  • Francesco Saraceno

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

Our paper investigates the impact of rising inequality in a two-country macroeconomic model with anagent-based household sector characterised by peer effects in consumption. In particular, the modelhighlights the role of inequality in determining diverging balance of payments dynamics within a currencyunion. Inequality may drive the two countries into different growth patterns: where peer effects inconsumption interact with higher credit availability, rising income inequality leads to the emergence of adebt-led growth. Where social norms determine weaker emulation and credit availability is lower, anexport-led regime arises. Eventually, a crisis emerges endogenously due to the sudden-stop of capitalows from the net lending country, triggered by the excessive risk associated to the dramatic amount ofprivate debt accumulated by households in the borrowing country. Monte Carlo simulations for a widerange of calibrations confirm the robustness of our results.

Suggested Citation

  • Alberto Cardaci & Francesco Saraceno, 2017. "Inequality and Imbalances: a Monetary Union Agent-Based Model," Working Papers hal-03455341, HAL.
    • Handle: RePEc:hal:wpaper:hal-03455341
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03455341
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    References listed on IDEAS

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    2. Bernhard Schuetz, 2022. "Investment booms, diverging competitiveness and wage growth within a monetary union: An AB-SFC model," ICAE Working Papers 138, Johannes Kepler University, Institute for Comprehensive Analysis of the Economy.
    3. Caiani, Alessandro & Catullo, Ermanno & Gallegati, Mauro, 2019. "The effects of alternative wage regimes in a monetary union: A multi-country agent based-stock flow consistent model," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 389-416.

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