On December 12, 2019, Fed in Print will introduce its new platform for discovering content. Please direct your questions to Anna Oates
Federal Reserve Bank of Cleveland
Working Papers (Old Series)
This paper studies short-run wealth mobility in a heterogeneous agents, incomplete-markets model. Wealth mobility has a “hump-shaped” relationship with the persistence of the stochastic process governing labor income: low when shocks are close to i.i.d. or close to a random walk, and higher in between. The standard incomplete markets framework features less wealth mobility than found in the PSID wealth supplements. We include features commonly used in the literature to capture wealth inequality and find that they do little to improve the model’s performance for wealth mobility. Finally, we introduce state-contingent assets, which allow households to partially span the space of labor productivity. Moving toward a more “complete” market lowers wealth mobility unless the labor income process is very persistent.
Cite this item
Daniel R. Carroll & Eric R. Young, Mobility, Federal Reserve Bank of Cleveland, Working Papers (Old Series) 1634, 23 Dec 2016.
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
Keywords: wealth mobility; inequality; incomplete markets
This item with handle RePEc:fip:fedcwp:1634
is also listed on EconPapers
For corrections, contact 4D Library ()