The Determinants of Aggregate Wealth

Abstract

This paper analyzes aggregate wealth based on separable risk aversion and intertemporal substitution. In an infinite-period OG model with survival uncertainty, economic growth, and permanent and temporary income shocks, our closed-form solution permits us to derive rich behavioral conclusions and to assess the relative importance of the major components of aggregate wealth. In particular, the separation of the attitudes towards risk and substitution allows us to disentangle behaviors relating to the intertemporal substitution motive from behaviors relating to the precautionary motive.