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Full-Text Articles in Social and Behavioral Sciences
Heterodox Macro After The Crisis, Peter Skott
Heterodox Macro After The Crisis, Peter Skott
Economics Department Working Paper Series
Macroeconomics is in crisis and this creates openings for alternative perspectives. The dominant heterodox traditions, however, have shortcomings that need to be addressed, both to improve our understanding of the real world and to take advantage of the opportunities offered by the irrelevance of most mainstream macro. This paper discusses three examples of areas that need attention: (i) investment functions (where popular specifications lack behavioral and empirical support), (ii) income distribution (where key developments have received little attention) and(iii) the relation between income inequality and financial markets (where extensions of existing models may help explain financial instability)
Increasing Inequality And Financial Instability, Peter Skott
Increasing Inequality And Financial Instability, Peter Skott
Economics Department Working Paper Series
Rising inequality affects the composition of asset demands as well as aggregate demand. The poor have few financial assets and their portfolio is skewed towards fixed-income assets. The rich, by contrast, hold a large proportion of their wealth in stocks. Thus, an increase in inequality tends to raise the demand for stocks. This generates capital gains, and these gains can fuel a bubble, as desired portfolios shift further towards stocks.