Inequality in a monetary dynamic macroeconomic model

2 March 2017
Matheus Grasselli

Thomas Piketty's influential book “Capital in the Twenty-First Century” documents the marked and unequivocal rise of income and wealth inequality observed across the developed world 
in the last three decades. His extrapolations into the distant future are much more controversial and has 
has been subject to various criticisms from both mainstreams and heterodox economists. This motivates the search for an alternative standpoint incorporating 
heterodox insights such as endogenous money and the lessons from the Cambridge capital controversies. We argue that the Goodwin-Keen approach paves the road towards such an alternative.
We first consider a modified Goodwin-Keen model driven by consumption by households, instead of investment by firms, leading to the same qualitative features 
of the original Keen 1995 model, namely the existence of an undesirable equilibrium characterized by infinite private debt ratio and zero employment, 
in addition to a desirable one with finite debt and non-zero employment. By further subdividing the household sector into workers and investors, we are able to investigate their relative 
income and wealth ratios for in the context of these two long-run equilibria, providing a testable link between asymptotic inequality and private debt accumulation.

  • Mathematical and Computational Finance Seminar