Inflation, Financial Developments, and Wealth Distribution

Wai-Yip Alex Ho and Chun-Yu Ho

No 2016/132, IMF Working Papers from International Monetary Fund

Abstract: We find that from 1995 to 2002 in China, the dispersion of wealth decreased, the moneywealth ratio increased for all wealth levels and the aggregate money-output ratio increased. We develop a two-asset dynamic general equilibrium model in which households face a portfolio adjustment cost and a borrowing constraint. We find that financial development lowers the dispersion of wealth by reducing the precautionary motive of households. In addition, tight monetary policies increase the value of money and thus increase the moneywealth ratio for all wealth levels and the aggregate money-output ratio.

Keywords: WP; adjustment cost; fiscal policy; inflation rate; Inflation; Borrowing Constraint; Heterogeneous Agents; Wealth Distribution; income process; calibrated economy; money-wealth ratio; financial assets holding; private-sector financial asset; Personal income; Income distribution; Consumption; Income shocks; Global; Wai-yip Alex Ho; wealth composition; Income (search for similar items in EconPapers)
Pages: 51
Date: 2016-07-06
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