What Drives Wealth Inequality in the United States? | Working Paper (2019)
This paper investigates the main forces underlying the dynamics of the US wealth distribution from 1989 to 2016. The analysis relies on household-level data from the Survey of Consumer Finances and it uncovers the central importance of heterogeneity in returns to wealth as a chief driver of the observed wealth concentration. Richer households own relatively more assets that yield, on average, higher returns (eg. public and private equity) and, interestingly, they also earn larger returns on similar assets such as private businesses. I show that these features explain a substantial amount of the increase in the wealth share of the richest 10% Americans after 1989, which was partially offset by nonfinancial income dynamics. As labor income represents a much larger share of wealth for poor households, savings out of labor earnings tend to benefit wealth accumulation at the bottom.
Bubbles and Stagnation | Working Paper (2017), Revised December 2019
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.