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Inequality and Financial Markets - A Simulation Approach in a Heterogeneous Agent Model

Fischer, Thomas
Teglio, Andrea (ed.) (2013):
Inequality and Financial Markets - A Simulation Approach in a Heterogeneous Agent Model.
In: Managing Market Complexity - The Approach of Artificial Economics, Berlin, Springer, pp. 79-90, [Book Section]

Item Type: Book Section
Erschienen: 2013
Editors: Teglio, Andrea
Creators: Fischer, Thomas
Title: Inequality and Financial Markets - A Simulation Approach in a Heterogeneous Agent Model
Language: English
Title of Book: Managing Market Complexity - The Approach of Artificial Economics
Series Name: Lecture notes in economics and mathematical systems
Number: 662
Place of Publication: Berlin
Publisher: Springer
ISBN: 978-3-642-31300-4
Divisions: 01 Department of Law and Economics
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete > Fachgebiet Makroökonomie und Finanzmärkte
Date Deposited: 27 Jul 2012 09:51
Additional Information:

JEL-Classification: C63 - D31 - E21 - E44

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Alternative keywords:
Alternative keywordsLanguage
Heterogeneous Agent Model - Inequality - Financial Market Stability - Consumption - Colateral Constraints- DebtEnglish
Alternative Abstract:
Alternative abstract Language
This paper presents a dynamic model with N heterogeneous consumers in the presence of financial markets allowing for saving and lending. Instead of adjusting their consumption based on utility maximization, agents use heuristics as suggested by behavioral theory. The main result of the model is that increased income inequality transforms into increased net worth inequality leading to increased price volatility on the market for durables. Unequal societies moreover are characterized by a current account surplus resulting from strong savings. Price volatility also increases if we increase heritage defined as the ratio of stock level of initial endowment to annual income. Medium size heritage on the other side increases the number of middle class households leading to a balanced current account. Extreme low or extreme high values for heritage contribute to a net debt situation with foreigners.English
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