U.S. inequality: Debt constraints or incomplete asset markets?

Juan Cordoba ()

Journal of Monetary Economics, 2008, vol. 55, issue 2, pages 350-364

Abstract: To examine the role of debt constraints and incomplete asset markets (lack of insurance markets) in explaining U.S. inequality, we run horse races between competing models. For a widely used model, we decompose inequality into its fundamental driving forces. The underlying source of inequality in all models is uninsurable idiosyncratic risk. Both debt constraints and incomplete asset markets are needed to account for inequality, but asset market incompleteness is the key friction. It better accounts for the concentration and dispersion of wealth, and is the most costly friction in terms of welfare. Tight debt constraints are important for explaining the lower tail of the wealth distribution.

Downloads: (external link)
http://www.sciencedi ... 4aabe28082cecd165aec
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this article

Journal of Monetary Economics is edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Series data maintained by Heidi Boesdal ().