Financial and Total Wealth Inequality with Declining Interest Rates

Daniel Greenwald, Matteo Leombroni, Hanno Lustig and Stijn Van Nieuwerburgh

No 28613, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Financial wealth inequality and long-term real interest rates track each other closely over the post-war period. Faced with unanticipated lower real rates, households which rely more on financial wealth must see large capital gains to afford the consumption that they planned before the decline in rates. Lower rates beget higher financial wealth inequality. Inequality in total wealth, the sum of financial and human wealth and the relevant concept for house-hold welfare, rises much less than financial wealth inequality and even declines at the top of the wealth distribution. A standard incomplete markets model reproduces the observed in-crease in financial wealth inequality in response to a decline in real interest rates because high financial-wealth households have a financial portfolio with high duration.

JEL-codes: E01 E1 E21 E24 E25 E44 G11 G5 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-mac
Note: AP CF EFG IFM PE
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Working Paper: Financial and Total Wealth Inequality with Declining Interest Rates (2021)
Working Paper: Financial and Total Wealth Inequality with Declining Interest Rates (2021)
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