Year: 2023
Type: report
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 crosssectional 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.
DOI: 10.3386/w31729
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W4387247014