Inflation, Financial Developments, and Wealth Distribution

52 Pages Posted: 9 Dec 2016

See all articles by Wai-Yip Alex Ho

Wai-Yip Alex Ho

Hong Kong Monetary Authority

Chun-Yu Ho

State University of New York (SUNY) - Department of Economics

Date Written: July 2016

Abstract

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

Suggested Citation

Ho, Wai-Yip Alex and Ho, Chun-Yu, Inflation, Financial Developments, and Wealth Distribution (July 2016). IMF Working Paper No. 16/132, Available at SSRN: https://ssrn.com/abstract=2882567

Wai-Yip Alex Ho (Contact Author)

Hong Kong Monetary Authority ( email )

Hong Kong Monetary Authority
55/F, 2 International Finance Centre, 8 Finance St
Central
Hong Kong

Chun-Yu Ho

State University of New York (SUNY) - Department of Economics ( email )

1400 Washington Ave
Albany, NY 12222
United States

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