Inflation, Financial Developments, and Wealth Distribution
52 Pages Posted: 9 Dec 2016
Date Written: July 2016
We find that from 1995 to 2002 in China, the dispersion of wealth decreased, the money wealth 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 money wealth ratio for all wealth levels and the aggregate money-output ratio.
Keywords: Inflation, China, Financial markets, Income distribution, Transition economies, Econometric models, Inflation, Borrowing Constraint, Adjustment Cost, Heterogeneous Agents,Wealth Distribution
JEL Classification: D30, O10, O20
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