Income Inequality, Household Debt, and Current Account Imbalances

This research project analyzes the country-specific effects of inequality within a stock-flow consistent macro model and within a DSGE model with heterogeneous and interacting households.

There is growing concern among economists that rising income inequality can contribute to the generation of financial crises and to macroeconomic instability more generally. In particular, it has been argued that rising inequality has contributed not only to the increase in household debt and the current account deficit in the United States but also to the overly export-dependent growth models of countries like China and Germany. The calibration of the model in this project will be guided by an in-depth analysis of household and company survey data and national institutions. This project also estimates a panel data model to examine the effects of rising inequality on current account balances empirically.