2021 Fiscal Year Final Research Report
The macroeconomic implications of a preference for wealth
| Project/Area Number |
19K23230
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| Research Category |
Grant-in-Aid for Research Activity Start-up
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| Allocation Type | Multi-year Fund |
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| Review Section |
0107:Economics, business administration, and related fields
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| Research Institution | Sophia University |
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Principal Investigator |
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| Project Period (FY) |
2019-08-30 – 2022-03-31
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| Keywords | Macroeconomics / Secular stagnation / Unemployment / Asset price bubbles / Wealth preference / Inequality |
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| Outline of Final Research Achievements |
The purpose of this grant was to analyze the macroeconomic implications of a preference for wealth in dynamic macroeconomic models. Such a preference provides strong incentives to save for households, which lowers equilibrium interest rates. Our main findings are as follows.
First, we show that such a low interest rate environment can give rise to asset price bubbles, i.e. asset values above those justified by economic fundamentals, and extends the fiscal space available to governments above the level suggested by the traditional analysis. Second, an economy can suffer from a persistent lack of aggregate demand (secular stagnation) in such an environment. We show that the labor market under stagnation can be characterized by substantial underemployment (i.e. non-regular and part-time employment) despite a low unemployment rate. Finally, our model provides a microfounded theory of inequality, formalizing and extending the empirical analysis of Piketty (2014).
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| Free Research Field |
Economics
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| Academic Significance and Societal Importance of the Research Achievements |
Our research establishes a foundation work for the theory of asset price bubbles, underemployment and wealth inequality. We provide insights into empirical puzzles, such as the rise of part-time employment in Japan, and policy recommendations for overcoming these challenges.
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