Understanding U.S. Wealth Inequality: the Role of Heterogeneous Returns | Job Market Paper (2020)
Why is wealth so concentrated in the United States? The literature has primarily emphasized how labor income differences generate wealth dispersion. Here, I highlight a different mechanism: return heterogeneity. My first contribution is to provide new empirical evidence on returns to wealth in the US using household-level data from the Survey of Consumer Finances (1989-2019). I document significant heterogeneity in returns, arising both from different wealth portfolio allocations and from return differences within narrowly defined asset classes. Wealthier households earn, on average, higher returns: moving from the 20th to the 99th percentile of the wealth distribution raises the average yearly return from 3.6% to 8.3%. To understand how these return differences shape the distribution of wealth, I introduce realistic return heterogeneity into a heterogeneous-agent model of household wealth accumulation. The baseline model reproduces the overall amount of wealth inequality observed in the data and implies that return heterogeneity is of first order importance to understand top wealth shares in the United States.
Bubbles and Stagnation | December 2019, Revise and Resubmit, Journal of the European Economic Association

This paper provides a theoretical framework to study the impact of asset bubbles in economies that are vulnerable to a secular stagnation. In an overlapping generations economy, stagnation is the result of a strong shortage of assets that triggers a liquidity trap and forces output to fall because prices are unable to adjust. In this context, bubbles can be useful as they expand the supply of assets and provide liquidity. By absorbing the excess savings in the economy, bubbles increase the natural interest rate and expand aggregate demand, which raises employment and potentially allows the economy to escape the stagnation equilibrium. What is more, the expansionary effects of a bubble may be present even before it actually appears by affecting expected future consumption. But bubbles may also collapse which weakens their expansionary ability. In fact, a bubble that is too risky fails to stimulate consumption and avoid stagnation altogether.


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