Financial and Total Wealth Inequality with Declining Interest Rates

101 Pages Posted: 1 Mar 2021 Last revised: 13 Jul 2022

See all articles by Daniel Greenwald

Daniel Greenwald

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Matteo Leombroni

Stanford University

Hanno N. Lustig

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Stijn Van Nieuwerburgh

Columbia University Graduate School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); ABFER

Multiple version iconThere are 3 versions of this paper

Date Written: July 12, 2022

Abstract

Financial wealth inequality and long-term real interest rates track each other closely over the post-war period. We investigate how much of the increase in measured inequality can be explained by the decline in rates, and what the implications are for inequality in total wealth (lifetime consumption). We estimate the exposure of financial portfolios to interest rates at the household level to show that there is enough heterogeneity in portfolio revaluations to explain 75% of the rise in financial wealth inequality since the 1980s. A standard incomplete markets model calibrated to these data implies that declining rates are not consumption neutral. Instead, the low-wealth young lose, while the high-wealth old gain.

Keywords: wealth inequality, declining real rates, human wealth, financial wealth

JEL Classification: E01, E24, E25, E44, G12, G51

Suggested Citation

Greenwald, Daniel and Leombroni, Matteo and Lustig, Hanno N. and Van Nieuwerburgh, Stijn, Financial and Total Wealth Inequality with Declining Interest Rates (July 12, 2022). Stanford University Graduate School of Business Research Paper , Available at SSRN: https://ssrn.com/abstract=3789220 or http://dx.doi.org/10.2139/ssrn.3789220

Daniel Greenwald

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave. E62-663
Cambridge, MA 02142
United States

Matteo Leombroni

Stanford University ( email )

Stanford, CA 94305
United States

Hanno N. Lustig

Stanford Graduate School of Business ( email )

Stanford GSB
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National Bureau of Economic Research (NBER)

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Stijn Van Nieuwerburgh (Contact Author)

Columbia University Graduate School of Business ( email )

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HOME PAGE: http://https://www0.gsb.columbia.edu/faculty/svannieuwerburgh/

National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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ABFER ( email )

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Singapore

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