Inflation, Financial Developments, and Wealth Distribution

ByWai-Yip Alex Ho, Chun-Yu Ho

July 6, 2016

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We find that from 1995 to 2002 in China, the dispersion of wealth decreased, the moneywealth ratio increased for all wealth levels and the aggregate money-output ratio increased. We develop a two-asset dynamic general equilibrium model in which households face a portfolio adjustment cost and a borrowing constraint. We find that financial development lowers the dispersion of wealth by reducing the precautionary motive of households. In addition, tight monetary policies increase the value of money and thus increase the moneywealth ratio for all wealth levels and the aggregate money-output ratio.

Subject: Consumption, Fiscal policy, Income, Income distribution, Income shocks, Inflation, National accounts, Personal income, Prices

Keywords: adjustment cost, Borrowing Constraint, calibrated economy, Consumption, financial assets holding, fiscal policy, Global, Heterogeneous Agents, Income, Income distribution, income process, Income shocks, Inflation, inflation rate, money-wealth ratio, Personal income, private-sector financial asset, Wai-yip Alex Ho, wealth composition, Wealth Distribution, WP

Pages:
51
Volume:
2016
DOI:
https://doi.org/10.5089/9781498352826.001
Issue:
132
Series:
Working Paper No. 2016/132
Stock No:
WPIEA2016132
ISBN:
9781498352826
ISSN:
1018-5941

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