Inequality and Aggregate Demand / Adrien Auclert, Matthew Rognlie.

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Auclert, Adrien

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w24280.Publication details: Cambridge, Mass. National Bureau of Economic Research 2018.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We explore the transmission mechanism of income inequality to output. In the short run, higher inequality reduces output because marginal propensities to consume are negatively correlated with incomes, but this effect is quantitatively small in the data and in our model. In the long run, the output effects of income inequality are small if inequality is caused by rising dispersion in individual fixed effects, but can be large if it is the manifestation of higher individual income risk. We formalize the connection between partial and general equilibrium effects, and show that the two are closely related under standard assumptions about the behavior of monetary policy. Our economy features a depressed long-run real interest rate, allowing us to quantify the potential contribution of income inequality to secular stagnation.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w24280 (Browse shelf(Opens below))	Not For Loan

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February 2018.

We explore the transmission mechanism of income inequality to output. In the short run, higher inequality reduces output because marginal propensities to consume are negatively correlated with incomes, but this effect is quantitatively small in the data and in our model. In the long run, the output effects of income inequality are small if inequality is caused by rising dispersion in individual fixed effects, but can be large if it is the manifestation of higher individual income risk. We formalize the connection between partial and general equilibrium effects, and show that the two are closely related under standard assumptions about the behavior of monetary policy. Our economy features a depressed long-run real interest rate, allowing us to quantify the potential contribution of income inequality to secular stagnation.