Capital market risk and the dynamics of the income distribution

Book English OPEN
Cripps, Martin (1999)
  • Publisher: University of Warwick. Centre for the Study of Globalisation and Regionalisation
  • Subject: HD

This paper introduces a dynamic model of the wealth distribution with aggregate risk in the capital market; the model combines credit rationing and portfolio selection decisions. In a closed economy the long-run behaviour of wealth is independent of the initial income distribution when there is aggregate uncertainty, although further restrictions are necessary when there is no aggregate uncertainty. There can be credit rationing at the long-run equilibrium. In poor economies aggregate risk in the capital market slows growth, whereas in richer economies a risky capital market is good for income growth.
  • References (9)

    Aghion, P. and P. Bolton (1997): \A Theory of Trickle-Down Growth and Development", Review of Economic Studies, 64, 151-172.

    Banerjee, A.V. and Newman, A.F. (1991): \Risk-Bearing and the Theory of Income Distribution", Review of Economic Studies, 58, 211-255.

    Diamond, D.W. (1989): \Reputation Acquisition in Debt Markets", Journal of Political Economy, 97, 828-862.

    Galor, O. and J. Zeira (1993): \Income Distribution and Macroeconomics", Review of Economic Studies, 60, 35-52.

    Grimmett. G. R. and D. R. Stirzaker (1982): \Probability and Random Processes", Oxford University Press, Oxford.

    Hopenhayn, H. and E. Prescott (1992): \Stochastic Monotonicity and the Stationary Distributions for Dynamic Economies", Econometrica, 60, 1387-1406.

    Piketty, T. (1997): \The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing", Review of Economic Studies, 64, 173-190.

    Stiglitz, J.E. and A. Weiss (1981): \Credit Rationing in Markets with Imperfect Information", American Economic Review, 71, 393-410.

    Stokey, N. L. and R. E. Lucas (1989): Recursive Methods In Economic Dynamics, Harvard University Press, Cambridge, Mass.

  • Metrics
    No metrics available
Share - Bookmark