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A Note on Income Inequality and Macro‐economic Volatility
Author(s) -
Levy Am
Publication year - 2002
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.00161
Subject(s) - economics , volatility (finance) , macro , econometrics , economic inequality , inequality , business cycle , multiplier (economics) , imperfect , macroeconomics , monetary economics , mathematics , mathematical analysis , linguistics , philosophy , computer science , programming language
Income inequality may influence macro‐economic variables by affecting the money multiplier and the trade‐off between inflation and output. In an AD‐AS model with imperfect foresight income inequality intensifies the volatility of output and inflation rate by increasing the likelihood of oscillations as well as their magnitude. Volatility is, however, moderated when income inequality prolongs the business cycles.