Limited Asset Market Participation, Income Inequality and Macroeconomic Volatility

Giorgio Motta and Patrizio Tirelli

No 261, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: By introducing external consumption habits and Limited Asset Market Participation in an otherwise standard New Keynesian DSGE model we uncover a causality link between limited asset market participation, consumption inequality and macroeconomic volatility. We also obtain that monetary contractions have redistributive effects in favor of asset holders, broadly confirming the findings in Coibion et al. (2012). Finally we analyze the impact of redistributive fiscal policies that target consumption inequality between households groups. Such policies have beneficial implications for macroeconomic stability, bringing the dynamic performance of the model close to the one generated by representative-agent DSGE models.

Keywords: Limited Asset Market Participation; DSGE; Determinacy; Consumption Habits; Income Inequality; Redistribution (search for similar items in EconPapers)
JEL-codes: E52 E63 (search for similar items in EconPapers)
Pages: 26
Date: 2013-12, Revised 2013-12
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Related works:
Working Paper: Limited asset market participation, income inequality and macroeconomic volatility (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:261

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