Mobility

51 Pages Posted: 27 Dec 2016

See all articles by Daniel Carroll

Daniel Carroll

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Eric R. Young

University of Virginia

Date Written: December 23, 2016

Abstract

This paper studies short-run wealth mobility in a heterogeneous agents, incomplete-markets model. Wealth mobility has a “hump-shaped” relationship with the persistence of the stochastic process governing labor income: low when shocks are close to i.i.d. or close to a random walk, and higher in between. The standard incomplete markets framework features less wealth mobility than found in the PSID wealth supplements. We include features commonly used in the literature to capture wealth inequality and find that they do little to improve the model’s performance for wealth mobility. Finally, we introduce state-contingent assets, which allow households to partially span the space of labor productivity. Moving toward a more “complete” market lowers wealth mobility unless the labor income process is very persistent.

Keywords: Wealth Mobility, Inequality, Incomplete Markets

JEL Classification: D52, D31, E21

Suggested Citation

Carroll, Daniel and Young, Eric R., Mobility (December 23, 2016). FRB of Cleveland Working Paper No. 16-34, Available at SSRN: https://ssrn.com/abstract=2889760

Daniel Carroll (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Eric R. Young

University of Virginia ( email )

1400 University Ave
Charlottesville, VA 22903
United States

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