Heterogeneity and redistribution in financial crises

Keiichiro Kobayashi, Daichi Shirai

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

This paper presents a simple model of an economy with heterogeneous agents to show that the redistribution of wealth among such agents can play a significant role in the propagation mechanism of financial crises. In an economy where firms with heterogeneous productivity operate under borrowing constraints, the redistribution reproduces hump-shaped responses for output and labor and procyclicality in observed productivity. In this model, a financial shock generates a persistent and hump-shaped response, whereas a productivity shock does not. Further, the redistribution of wealth significantly amplifies the persistence and hump shape of these responses following a financial shock. This model suggests that redistribution may thus be a key driving force behind the transmission of financial crises.

Original languageEnglish
Pages (from-to)1527-1549
Number of pages23
JournalMacroeconomic Dynamics
Volume20
Issue number6
DOIs
Publication statusPublished - 2016 Sep 1

Keywords

  • Borrowing Constraint
  • Heterogeneity
  • Labor Wedge
  • Redistribution of Wealth

ASJC Scopus subject areas

  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Heterogeneity and redistribution in financial crises'. Together they form a unique fingerprint.

Cite this