Inequality and Business Cycles

Florin Bilbiie, Giorgio Primiceri and Andrea Tambalotti

No 31729, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We quantify the connection between inequality and business cycles in a medium-scale New Keynesian model with tractable household heterogeneity, estimated with aggregate and cross-sectional data. We find that inequality substantially amplifies cyclical fluctuations. The primary source of this amplification is cyclical precautionary saving behavior. Savers reduce their consumption to insure themselves against the idiosyncratic risk of large income drops, which rises in recessions.

JEL-codes: E30 (search for similar items in EconPapers)
Date: 2023-09
New Economics Papers: this item is included in nep-dge and nep-fdg
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Related works:
Working Paper: Inequality and Business Cycles (2023)
Working Paper: Inequality and Business Cycles (2022)
Working Paper: Inequality and Business Cycles (2022)
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