| 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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| Project Status |
Granted (Fiscal Year 2020)
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| Budget Amount *help |
¥2,470,000 (Direct Cost: ¥1,900,000、Indirect Cost: ¥570,000)
Fiscal Year 2020: ¥1,170,000 (Direct Cost: ¥900,000、Indirect Cost: ¥270,000)
Fiscal Year 2019: ¥1,300,000 (Direct Cost: ¥1,000,000、Indirect Cost: ¥300,000)
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| Keywords | Wealth preference / Macroeconomics / Rational bubbles / Public debt / Underemployment / Inequality / Secular stagnation / Stagnation / Bubbles / Preference for wealth |
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| Outline of Research at the Start |
The desire to accumulate wealth affects the saving patterns of households. I analyze the associated implications for macroeconomic phenomena such as stagnation, inequality and asset price bubbles.
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| Outline of Annual Research Achievements |
We investigate the consequences of incorporating a strong motive to save, captured by a preference for wealth, into an otherwise standard dynamic macroeconomic model. Our main findings are:
1. Asset price bubbles: Rational bubbles can occur when the economy suffers from dynamic inefficiency despite the absence of household heterogeneity. This finding provide an alternative way to model bubbles. Applied to public debt, it implies that the government's fiscal scope is more extensive than suggested by the standard analysis.
2. Inequality dynamics: Wealth inequality can rise even in the absence of income inequality or idiosyncratic investment risk, consistent with Piketty's theory of inequality. We find rich interactions between the individual consumption and saving behaviour, the wealth distribution over all individuals and macroeconomic aggregates such as the capital stock and the real interest rate.
3. Secular stagnation: Underemployment, in addition to structural unemployment, occurs in the labor market when the economy suffers from a persistent lack of demand. This finding can explain the increase in non-regular and part-time employment in many advanced economies such as Japan despite the seemingly decent employment record.
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| Current Status of Research Progress |
Current Status of Research Progress
2: Research has progressed on the whole more than it was originally planned.
Reason
This research project on the macroeconomic implications of a preference for wealth has progressed rather smoothly over the previous year.
Specifically, substantial progress has been made on our paper on rational bubbles which we have now submitted to a high-ranking academic journal.
In addition, progress on other projects has been made throughout the last year, but particularly during my research visits to ISER, Osaka University, which allowed for more intensive interactions with co-authors. We have extended the scope of our analysis, including empirical applications as well as an application of mean-field-game methodology.
Unfortunately, our plans to present our results at international conferences have progressed less smoothly than expected, primarily due to the Covid-19 restrictions.
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| Strategy for Future Research Activity |
Despite the progress outlined above, there is still substantial scope for extensions of our projects.
Specifically, we are planning to extend the empirical analysis of our project on underemployment, calibrating the model to Japanese and U.S. labor market data in order to quantify the relative importance of underemployment versus unemployment.
In addition, our project on inequality requires extensive numerical simulations using the mean-field game approach. We are also planning an empirical application of this model as well as an extension to analyze the interactions of inequality and stagnation in an integrated framework.
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