Rising Capital Shares, Risk Taking and The Secular Stagnation
Facundo Piguillem () and
No 1513, 2017 Meeting Papers from Society for Economic Dynamics
In the last 20 years we have witnessed a decline in the labor shares, low real interest rates and anemic growth in developed economies. Using a neoclassical growth model with Cobb Douglas technology, a capital intensity that fluctuates over time, and a financial frictions, we explore whether changes in the relative productivity of capital can generate these facts through changes in the risk taking behavior of capital holders and what would be the implications for financial regulations. A combination of financial frictions and a persistent change in the capital intensity (decline in the labor share) can account for a decline in the price of risk, and a moderate increase in the dividends of capital firms but cannot account for the decrease in the real rates.
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