Household Debt and Income Inequality, 1963-2003

Matteo Iacoviello ()

No 585, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: I construct a heterogeneous agents economy that mimics the time-series behavior of the US earnings distribution from 1963 to 2003. Agents face aggregate and idiosyncratic shocks and accumulate real and financial assets. I estimate the shocks driving the model using data on income inequality, on aggregate income and on measures of financial liberalization. I show how the model economy can replicate two empirical facts: the trend and cyclical behavior of household debt, and the diverging patterns in consumption and wealth inequality over time. In particular, I show that, while short-run changes in household debt can be accounted for by aggregate fluctuations, the rise in household debt of the 1980s and the 1990s can be quantitatively explained only by the concurrent increase in income inequality

Keywords: Household Debt; Income Inequality; Incomplete Markets; Borrowing Constraints (search for similar items in EconPapers)
JEL-codes: E31 E32 E44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2006-12-03

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Related works:
Working Paper: Household Debt and Income Inequality, 1963-2003 (2007)
Journal Article: Household Debt and Income Inequality, 1963-2003 (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:red:sed006:585

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