Aggregate Demand and the Top 1 Percent | Zendy

Adrien Auclert | Zendy; Matthew Rognlie | Zendy

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Aggregate Demand and the Top 1 Percent

Author(s) -

Adrien Auclert,

Matthew Rognlie

Publication year - 2017

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.p20171004

Subject(s) - economics , merge (version control) , aggregate demand , consumption (sociology) , precautionary savings , income distribution , inequality , economic inequality , aggregate expenditure , econometrics , labour economics , microeconomics , monetary economics , macroeconomics , recession , monetary policy , mathematical analysis , social science , mathematics , sociology , computer science , information retrieval

There has been a large rise in US top income inequality since the 1980s. We merge a widely studied model of the Pareto tail of labor incomes with a canonical model of consumption and savings to study the consequences of this increase for aggregate demand. Our model suggests that the rise of the top 1 percent may have led to a large increase in desired savings and can explain a 0.45pp to 0.85pp decline in long-run real interest rates. This effect arises from both a wealth effect at the top and increased precautionary savings from declines lower in the income distribution.

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