Market Power, Inequality, and Financial Instability
41 Pages Posted: 21 Aug 2020
Date Written: August, 2020
Over the last four decades, the U.S. economy has experienced a few secular trends, each of which may be considered undesirable in some aspects: declining labor share; rising profit share; rising income and wealth inequalities; and rising household sector leverage and associated financial instability. We develop a real business cycle model and show that the rise of market power of the firms in both product and labor markets over the last four decades can generate all of these secular trends. We derive macroprudential policy implications for financial stability.
JEL Classification: E21, E25, G01
Suggested Citation: Suggested Citation