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Illiquid Saving And Wealth Accumulation Under Uncertainty, Jaime Ruiz-Tagle
Illiquid Saving And Wealth Accumulation Under Uncertainty, Jaime Ruiz-Tagle
Jaime Ruiz-Tagle
When saving cannot be used to buffer contemporary uncertain shocks it becomes illiquid saving. This paper shows that illiquid saving can explain why rich people save more even when the only purpose of wealth accumu- lation is to finance future consumption. From our simulations we conclude that this saving behaviour determines that the level of uncertainty relative to the level of wealth determines if the individual is able to accumulate wealth or if he will reduce his wealth permanently. We find that for a given level of uncertainty, there is a wealth threshold below which the individual gets trapped because …
Financial Markets Incompleteness And Inequality Over The Life-Cycle, Jaime Ruiz-Tagle
Financial Markets Incompleteness And Inequality Over The Life-Cycle, Jaime Ruiz-Tagle
Jaime Ruiz-Tagle
This paper addresses the relevance of contemporary uncertainty under in- complete markets in explaining wealth and consumption inequality when preferences are homogeneous. We explore the role of illiquid saving (saving that cannot be used to buffer contemporary shocks) generated by contempo- rary uncertainty, and a cost of liquidating saving, in generating differences in saving behaviour between initially-rich and initially-poor in a numerically solved life-cycle model. We observe that the existence of a risk premium significantly increases the ability of the households to accumulate wealth to finance their consumption, even under high risk aversion. We find that there is increasing consumption …