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Risk, uncertainty, and the dynamics of inequality

Abstract:

The dynamics of wealth inequality are studied in a continuous-time Blanchard/Yaari model. Investment returns are idiosyncratic and subject to Knightian uncertainty. In response, agents formulate robust portfolio policies. These policies are nonhomothetic; wealthy agents invest a higher fraction of their wealth in uncertain assets yielding higher mean returns. This produces a feedback mechanism that amplifies inequality. It also produces an accelerated rate of convergence, which helps resolve ...

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Publication status:
Published
Peer review status:
Peer reviewed

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Institution:
University of Oxford
Division:
Social Sciences Division
Department:
Economics
Oxford college:
Nuffield College
Publisher:
Elsevier Publisher's website
Journal:
Journal of Monetary Economics Journal website
Volume:
94
Pages:
60-78
Publication date:
2017-11-21
Acceptance date:
2017-11-17
DOI:
EISSN:
1873-1295
ISSN:
0304-3932
Pubs id:
pubs:938170
URN:
uri:bb1dffaa-78af-42eb-b949-bc6e7d07a55e
UUID:
uuid:bb1dffaa-78af-42eb-b949-bc6e7d07a55e
Local pid:
pubs:938170

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