skewed wealth distributions theory and empirics invariably across a cross section of countries and time periods wealth distributions are skewed to the right displaying thick upper tails that is large and slowly declining top wealth shares in this survey we categorize the theoretical studies on the distribution of wealth in terms of the underlying economic mechanism generating skewness and thick tails further we show how these mechanisms can be micro founded by the consumption saving decisions of rational agents in speci c economic and demographic environments finally we map the large empirical work on the wealth distribution to its theoretical underpinning

demand pull technology push and government led incentives for non incremental technical change abstract rising expectations about future demand for new technologies increase the incentives for investments in innovation by enlarging payoffs to successful innovations how well does this notion of demand pull apply to non incremental technological change when demand is largely attributable to actions by governments in this case inventors of the most important inventions did not respond positively to strong demand pull policies filing of highly cited patents declined precipitously just as demand for wind power created a multi billion dollar market three explanations for this apparent inconsistency with the demand pull hypothesis played a role 1 the rapid convergence on a single dominant design limited the market opportunity for non incremental technical improvements 2 even though the policies implemented were stringent enough to stimulate demand uncertainty in their longevity dampened the incentives for inventions that were likely to take several years to pay off and 3 alternative explanations such as declining r d funding and weakening presidential engagement on energy appear to have been important

the evolution of wealth inequality over half a century the role of taxes transfers and technology over the last 50 years the u s tax system went through a striking transformation that reduced the effective tax rates for top income groups and raised transfers to seniors this paper investigates the macroeconomic repercussions of this change in policy particularly for the distributions of income wealth and consumption changes in taxes and transfers account for nearly half of the rise in wealth concentration nonetheless their impact on the distributions of income and consumption has been minor due to changes in equilibrium prices and the offsetting effects of tax cuts and transfers on the dispersion of consumption results highlight the role of increasing wage dispersion during this period as the main driver of trends in inequality

sources of lifetime inequality is lifetime inequality mainly due to differences across people established early in life or to differences in luck experienced over the working lifetime we answer this question within a model that features idiosyncratic shocks to human capital estimated directly from data as well as heterogeneity in ability to learn initial human capital and initial wealth we find that as of age 23 differences in initial conditions account for more of the variation in lifetime earnings lifetime wealth and lifetime utility than do differences in shocks received over the working lifetime jel d31 d91 j24 j31 to what degree is lifetime inequality due to differences across people established early in life as opposed to differences in luck experienced over the working lifetime among the individual differences established early in life which ones are the most important a convincing answer to these questions is of fundamental importance first and most simply an answer serves to contrast the potential importance of the myriad policies directed at modifying or at providing insurance for initial conditions e g public education against those directed at shocks over the working lifetime e g unemployment insurance second a discussion of lifetime inequality cannot go too far before discussing which specific type of initial condition is the most critical for determining how one fares in life third a useful framework for answering these questions should also be central in the analysis of a wide range of policies considered in macroeconomics public finance and labor economics we view lifetime inequality through the lens of a risky human capital model agents differ in terms of three initial conditions initial human capital learning ability and financial wealth initial human capital can be viewed as controlling the intercept of an agent s mean earnings profile whereas learning ability acts to rotate

a search based model of the interbank money market and monetary policy implementation we present a search based model of the interbank money market and monetary policy implementation banks are subject to reserve requirements and the central bank tenders reserves interbank payments redistribute holdings and banks trade with each other in a decentralized over the counter market the central bank provides standing facilities where banks can either deposit surpluses or borrow to cover shortfalls of reserves overnight the model provides insights on liquidity trading volume and rate dispersion in the interbank market features largely absent from the canonical models in the tradition of poole 1968 and fits a number of stylized facts for the eurosystem observed during the recent period of unconventional monetary policies moreover it provides insights on the implications of different market structures

wealth dynamics in the 1980s and 1990s sweden and the united states given differences in public saving programs between sweden and the united states an examination of household private wealth accumulation in these two countries can be enlightening in this paper we examine wealth inequality and mobility in sweden and the

monetary policy transmission with interbank market fragmentation this paper shows how interbank market fragmentation disrupts the transmission of monetary policy fragmentation is the fact that banks depending on their country of location have different probabilities of default on their interbank borrowings once fragmentation is introduced into standard theoretical models of monetary policy implementation excess liquidity arises endogenously this leads short term interest rates to depart from the central bank policy rates using data on monetary policy operations i show that this mechanism has been at work in the euro area since 2008 the model is used to analyze conventional and unconventional monetary policy measures

fixed costs and the behavior of the federal funds rate abstract this paper presents an equilibrium model of the federal funds market that ties movements in the funds rate to changes in the supply of reserves and to a fixed cost facing banks that borrow at the discount window it is found that the existence of the fixed cost is capable of explaining a number of features of the funds market in particular it is critical for explaining occasional instances of extremely high funds rates it also provides an explanation for heterogeneous behavior across banks towards the discount window and for higher average funds rates at the end of maintenance periods

discount window stigma during the 2007 2008 financial crisis abstract we provide empirical evidence for the existence magnitude and economic cost of stigma associated with banks borrowing from the federal reserve s discount window dw during the 2007 2008 financial crisis we find that banks were willing to pay a premium of around 44 basis points bps across funding sources 126 bps after the bankruptcy of lehman brothers to avoid borrowing from the dw dw stigma is economically relevant as it increased some banks borrowing cost by 32 bps of their pre tax return on assets roa during the crisis the implications of our results for the provision of liquidity by central banks are discussed

liquidity regulation and the implementation of monetary policy in addition to revamping existing rules for bank capital basel iii introduces a new global framework for liquidity regulation one part of this framework is the liquidity coverage ratio lcr which requires banks to hold sufficient high quality liquid assets to survive a 30 day period of market stress as monetary policy typically involves targeting the interest rate on loans of one of these assets central bank reserves it is important to understand how this regulation may impact the efficacy of central banks current operational frameworks we introduce term funding and an lcr requirement into an otherwise standard model of monetary policy implementation our model shows that if banks face the possibility of an lcr shortfall then the usual link between open market operations and the overnight interest rate changes and the short end of the yield curve becomes steeper our results suggest that central banks may want to adjust their operational frameworks as the new regulation is implemented

interest rate corridors and reserves abstract this paper evaluates reserves regimes versus interest rate corridors which have become competing frameworks for monetary policy implementation rate corridors relying on lending and deposit facilities to create ceilings and floors for overnight interest rates evince mixed results on controlling volatility reserve requirements allow period average smoothing of interest rates but even if remunerated are subject to reserve avoidance activities a system of voluntary period average reserve commitments could offer equivalent rate smoothing advantages if central banks created symmetric opportunity costs of meeting or falling short of period average reserve requirements or commitments they could achieve flat reserve demand on settlement day

the distribution of wealth and fiscal policy in economies with finitely lived agents we study the dynamics of the distribution of wealth in an overlapping generation economy with finitely lived agents and intergenerational transmission of wealth financial markets are incomplete exposing agents to both labor and capital income risk we show that the stationary wealth distribution is a pareto distribution in the right tail and that it is capital income risk rather than labor income that drives the properties of the right tail of the wealth distribution we also study analytically the dependence of the distribution of wealth of wealth inequality in particular on various fiscal policy instruments like capital income taxes and estate taxes and on different degrees of social mobility we show that capital income and estate taxes can significantly reduce wealth inequality as do institutions favoring social mobility finally we calibrate the economy to match the lorenz curve of the wealth distribution of the u s economy

induced innovation and energy prices this paper uses u s patent data from 1970 to 1994 to study the impact of energy prices on energy efficient innovations theories of technological change have focused both on demand side factors which spur innovative activity by increasing the value of new innovations and supply side factors such as scientific advancements that make new innovations possible data on demand side factors are easily obtained but data on supply side factors that influence innovation are not readily available this paper uses patent citations as a measure of the usefulness of the existing base of scientific knowledge citations to previous patents are used to construct productivity estimates which measure the usefulness of the existing stock of knowledge to inventors in a given energy field for any given year these estimates are then combined with data on demand side factors to estimate a model of induced innovation in energy technologies the results indicate that both energy prices and the supply of knowledge have strongly significant positive effects on innovation the paper concludes with a discussion of the implication of this work for environmental policy

a computational model of banks optimal reserve management policy abstract this paper uses numerical methods to model the demand for excess reserves by a representative bank in a framework that includes many realistic features of the current reserve market structure in the united states in particular the model incorporates a 14 day maintenance period and an accurate representation of carryover provisions we use the model to evaluate the effect of various changes to the operating environment increased uncertainty modified penalties and changes to policy paying interest on reserves

trade dynamics in the market for federal funds we develop a model of the market for federal funds that explicitly accounts for its two distinctive features banks have to search for a suitable counterparty and once they have met both parties negotiate the size of the loan and the repayment the theory is used to answer a number of positive and normative questions what are the determinants of the fed funds rate how does the market reallocate funds is the market able to achieve an efficient reallocation of funds we also use the model for theoretical and quantitative analyses of policy issues facing modern central banks

day to day monetary policy and the volatility of the federal funds rate we propose a model of the interbank money market with an explicit role for central bank intervention and periodic reserve requirements and study the interaction of profit maximizing banks with a central bank targeting interest rates at high frequency the model yields predictions on biweekly patterns of the federal funds rate s volatility and on its response to changes in target rates and in intervention procedures such as those implemented by the fed in 1994 theoretical results are consistent with empirical patterns of interest rate volatility in the u s market for federal funds

day to day monetary policy and the volatility of the federal funds interest rate we propose a model of the interbank money market with an explicit role for central bank intervention and periodic reserve requirements and study the interaction of profit maximizing banks with a central bank targeting interest rates at high frequency the model yields predictions on biweekly patterns of the federal funds rate s volatility and on its response to changes in target rates and in intervention procedures such as those implemented by the fed in 1994 theoretical results are consistent with empirical patterns of interest rate volatility in the u s market for federal funds

the dynamics of inequality the past forty years have seen a rapid rise in top income inequality in the united states while there is a large number of existing theories of the pareto tail of the long run income distributions almost none of these address the fast rise in top inequality observed in the data we show that standard theories which build on a random growth mechanism generate transition dynamics that are too slow relative to those observed in the data we then suggest two parsimonious deviations from the canonical model that can explain such changes scale dependence that may arise from changes in skill prices and type dependence that is the presence of some high growth types these deviations are consistent with theories in which the increase in top income inequality is driven by the rise of superstar entrepreneurs or managers

trends in the substitution of production factors to technology empirical analysis of the inducing impact of the energy crisis on japanese industrial abstract japan successfully overcame the energy crises of 1973 and 1979 maintaining productivity in the face of drastically increased energy prices despite the fragile nature of its energy structure this was due to technological innovation efforts that led to rapid improvement in japan s industrial technology as a whole this paper tries to prove this hypothesis on the basis of an examination of the trends in the substitution of production factors by technology as represented by r d investment efforts since the first energy crisis in 1973 there have been a number of attempts to identify the possibility of substitutability of energy by other production factors but none have been successful in taking technology into account this paper tackles this subject on the basis of the measurement of the technological knowledge stock and en empirical analysis using a translog cost function incorporating this stock and shows that over the last two decades all production factors have been substituted by technology in japan s manufacturing industry or have been moving towards that direction

energy prices and induced innovation abstract the received theory of induced innovation implies that input prices as well as other economic factors such as demand and market structure determine the extent and nature of the optimizing firm s allocation of resources to research activity this paper investigates the effects of large increases in the prices of energy and other intermediate materials during the early to mid 1970s on the amount of r d performed by u s manufacturing firms the evidence indicates that industries most affected by these price increases maintained the highest growth rate of r d expenditure holding constant output growth

wealth inequality in the united states since 1913 evidence from capitalized income tax data this paper combines income tax returns with flow of funds data to estimate the distribution of household wealth in the united states since 1913 we estimate wealth by capitalizing the incomes reported by individual taxpayers accounting for assets that do not generate taxable income we successfully test our capitalization method in three micro datasets where we can observe both income and wealth the survey of consumer finance linked estate and income tax returns and foundations tax records wealth concentration has followed a u shaped evolution over the last 100 years it was high in the beginning of the twentieth century fell from 1929 to 1978 and has continuously increased since then the rise of wealth inequality is almost entirely due to the rise of the top 0 1 wealth share from 7 in 1979 to 22 in 2012 a level almost as high as in 1929 the bottom 90 wealth share rst increased up to the mid 1980s and then steadily declined the increase in wealth concentration is due to the surge of top incomes combined with an increase in saving rate inequality top wealth holders are younger today than in the 1960s and earn a higher fraction of total labor income in the economy we explain how our ndings can be reconciled with survey of consumer finances and estate tax data

open mouth operations abstract this paper explains how central bank statements rather than open market operations can be used to implement monetary policy in the extreme policy instruments can be held constant and yet interest rates will evolve along the path desired by the central bank we show how the recent implementation of monetary policy in new zealand works in this way using announcement data from new zealand we find that open mouth operations lead to large changes in interest rates across all maturities and these changes cannot be explained by open market operations implications are drawn for monetary policy in other jurisdictions

the pareto zipf and other power laws abstract many empirical size distributions in economics and elsewhere exhibit power law behaviour in the upper tail this article contains a simple explanation for this it also predicts lower tail power law behaviour which is verified empirically for income and city size data