Ostensible Financial Stability Caused by Wealth Inequality

8 Pages Posted: 28 Mar 2018

See all articles by Youngna Choi

Youngna Choi

Montclair State University - Department of Mathematical Sciences

Date Written: March 23, 2018

Abstract

This article investigates ostensible financial stability of an economic sector caused by wealth inequality. When a sector is decomposed into two subsectors that possess a severe wealth inequality, the sector in entirety can look financially stable while the two subsectors have opposite extreme financially instability, one from excessive equity the other from lack thereof. The unstable subsector can result in further financial distress and even trigger a financial crisis. The market instability indicator, an early warning system derived from dynamical systems is used to analyze the subsectoral financial instability of the system. An extreme case analysis is provided to explain what financial instabilities can arise amid seemingly stable economy and positive outcomes.

Keywords: wealth inequality, financial stability, contagion, agent-based model

JEL Classification: C02, C65, G01

Suggested Citation

Choi, Youngna, Ostensible Financial Stability Caused by Wealth Inequality (March 23, 2018). Available at SSRN: https://ssrn.com/abstract=3147465 or http://dx.doi.org/10.2139/ssrn.3147465

Youngna Choi (Contact Author)

Montclair State University - Department of Mathematical Sciences ( email )

Upper Montclair, NJ 07043
United States
973.655.7782 (Phone)
973.655.7686 (Fax)

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