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- Title
Aggregate Demand and the Top 1 Percent.
- Authors
Auclert, Adrien; Rognlie, Matthew
- Abstract
There has been a large rise in US top income inequality since the 1980s. We merge a widely studied model of the Pareto tail of labor incomes with a canonical model of consumption and savings to study the consequences of this increase for aggregate demand. Our model suggests that the rise of the top 1 percent may have led to a large increase in desired savings and can explain a 0.45pp to 0.85pp decline in long-run real interest rates. This effect arises from both a wealth effect at the top and increased precautionary savings from declines lower in the income distribution.
- Subjects
UNITED States; AGGREGATE demand; RICH people; INCOME inequality; SAVINGS; WEALTH effect (Economics); FINANCE
- Publication
American Economic Review, 2017, Vol 107, Issue 5, p588
- ISSN
0002-8282
- Publication type
Article
- DOI
10.1257/aer.p20171004