Data and Code for: Wealth Inequality, Aggregate Consumption, and Macroeconomic Trends under Incomplete Markets

Principal Investigator(s): View help for Principal Investigator(s) Byoungchan Lee, Hong Kong University of Science and Technology

Version: View help for Version V1

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Project Citation:

Lee, Byoungchan. Data and Code for: Wealth Inequality, Aggregate Consumption, and Macroeconomic Trends under Incomplete Markets. Nashville, TN: American Economic Association [publisher], 2024. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2024-11-22. https://doi.org/10.3886/E197062V1

Project Description

Summary:

I construct an incomplete market model featuring a closed-form expression for optimal consumption. In the model, individual consumption is an isoelastic function of wealth, inclusive of income, yielding partial consumption smoothing based on borrowing and lending in response to income shocks. I show that the model replicates several empirical characteristics of inequality in consumption, income, and wealth and their dynamics at the individual level. Using the model, I show that the rising wealth inequality since the 1980s, induced by an increase in idiosyncratic income risk, has substantially contributed to trend-level changes in real interest rates, capital-to-income ratios, and consumption-to-wealth ratios.

Funding Sources: Hong Kong University of Science and Technology (R9213)

Scope of Project

Subject Terms: consumption function; wealth inequality; aggregate demand; income process; real interest rates

JEL Classification:
      C61 Optimization Techniques; Programming Models; Dynamic Analysis
      E20 Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data)
      E43 Interest Rates: Determination, Term Structure, and Effects
      G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth

Geographic Coverage: US

Time Period(s): 1983 – 2018

Collection Date(s): 1984 – 2019

Universe: (1) Aggregate US macroeconomic time series data
(2) PSID: Households in a nationally representative sample in the US in addition to an oversample of low-income households. This PSID data is available from a separate, companion repository, https://doi.org/10.3886/E197181V2.

Data Type(s): aggregate data; survey data

Methodology

Data Source:

Board of Governors of the Federal Reserve System (US). 2024a. All Sectors;

Net National Income/Balance of Primary Incomes, Net (IMA), Transactions

[ASIPINA027N], retrieved from FRED, Federal Reserve Bank of St.

Louis; https://fred.stlouisfed.org/series/ASIPINA027N, June 6, 2024.

Board of Governors of the Federal Reserve System (US). 2024b.

All Sectors; U.S. Wealth, Level [BOGZ1FL892090005Q], retrieved

from FRED, Federal Reserve Bank of St. Louis;

https://fred.stlouisfed.org/series/BOGZ1FL892090005Q, June 6, 2024.

Laubach, Thomas, and John C. Williams. 2016a. “Data for: Measuring

the natural rate of interest redux.” Business Economics 51(2): 57–67.

https://www.newyorkfed.org/medialibrary/media/research/economists/williams/data/Laubach_Williams_real_time_estimates.xlsx.

Piketty, Thomas, and Gabriel Zucman. 2014b. “Data for: Capital

is back: Wealth-income ratios in rich countries 1700–2010.”

Quarterly Journal of Economics 129(3): 1255–1310. https://gabriel–

zucman.eu/files/capitalisback/USA.xlsx.

U.S. Bureau of Economic Analysis. 2024a. Government Consumption Expenditures

and Gross Investment [GCEA], retrieved from FRED, Federal Reserve

Bank of St. Louis; https://fred.stlouisfed.org/series/GCEA, June 5, 2024.

U.S. Bureau of Economic Analysis. 2024b. Personal Consumption Expenditures

[PCECA], retrieved from FRED, Federal Reserve Bank of St. Louis;

https://fred.stlouisfed.org/series/PCECA, June 5, 2024.

World Inequality Database (WID). 2022. "Net national wealth to Net National Income Ratio, Total population, ratio, ALL AGES, INDIVIDUAL", accessed at https://wid.world/share/#0/countrytimeseries/wwealn_pall_z/US/2015/eu/k/p/yearly/w/false/229.7695/70.../curve/false/1913/2022 on May 21, 2020.

The PSID data from the sources below is available from a separate, companion repository, https://doi.org/10.3886/E197181V2:

Attanasio, Orazio, and Luigi Pistaferri. 2014b. “Replication data for: Consumption

Inequality over the Last Half Century: Some Evidence Using the

New PSID Consumption Measure.” American Economic Association [publisher]

Inter-university Consortium for Political and Social Research [distributor].

https://doi.org/10.3886/E112766V1.

Blundell, Richard, Luigi Pistaferri, and Ian Preston. 2008b. “Replication

data for: Consumption Inequality and Partial Insurance.” American Economic

Association [publisher] Inter-university Consortium for Political and Social Research

[distributor]. https://doi.org/10.3886/E113270V1.

Panel Study of Income Dynamics. 2023. Public use dataset. Produced and

distributed by the Survey Research Center, Institute for Social Research, University

of Michigan, Ann Arbor, MI.

Unit(s) of Observation: (1) (Aggregate) National, Year, (2) (PSID) Individual/Households, Year/Biennial

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