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Čt 08.12.2022

Kamila Sommer (Federal Reserve Board) "The Business Cycle Dynamics of the Wealth Distribution"

Kamila Sommer, Ph.D.

Federal Reserve Board

Authors: Kamila Sommer, Jesse Bricker, Joseph Briggs, Sarah Friedman

Abstract: We analyze new household balance sheet measures and quantify the business cycle dynamics of the wealth distribution in the US since 1989. After introducing these data and establishing their credibility, we show that heterogeneous exposures to aggregate price risk accounts for most cyclical variation in the wealth distribution, though group-specific factors also have a non-negligible effect. Next, we show that increases in the output gap and unemployment rate increase wealth inequality, as do accommodative monetary policy shocks. We then describe distributional differences in the evolution of household balance sheets during the last two recessions. Finally, these results imply that accurate models of wealth dynamics require a sufficiently rich portfolio choice problem.

Full Text: The Business Cycle Dynamics of the Wealth Distribution