A1413
Title: Wealth inequality and economic volatilities
Authors: Hiro Ito - Portland State University (United States) [presenting]
Joshua Aizenman - University of Southern California (United States)
Abstract: The aim is to examine whether and how wealth structure affects the extent of macro stabilization. In countries with higher levels of wealth-income inequality, those with wealth can afford to use their wealth to live in this kind of environment. In contrast, for poorer countries, the costs of public goods can be too expensive. The use of fiscal space may be affected by the degree of wealth distribution. The correlation between the degree of macroeconomic stabilization and the extent of wealth inequality is examined. It is first graphically shown that the sample economies with higher levels of wealth inequality tend to experience higher degrees of inflation volatility, which we do not find in output volatility. Panel regressions also yield findings consistent with graphical examinations. When interaction terms are included between wealth inequality and other macroeconomic variables, it is found that the volatility-increasing impact of wealth inequality is greater for a developing country loaded with a higher level of government debt. The impact of wealth inequality on output growth volatility is lower for commodity exporters but higher for manufacturing exporters. A developing country with more open financial markets tends to experience greater output growth volatility if it has a higher level of wealth inequality.
