Displacement and the Rise in Top Wealth Inequality (2018)
Revise and Resubmit, Econometrica
The growth of top wealth shares can be decomposed into two terms: (i) a within term, driven by the average wealth growth of households in top percentiles relative to the economy and (ii) a displacement term, driven by all higher-order moments of their wealth growth. I propose an accounting framework to map this decomposition to the data. I find that the displacement term accounts for more than half of the rise in top wealth shares in the United States since 1983. I examine the importance of this finding for the relationship between wealth inequality and economic growth, as well as for wealth mobility.
Asset Prices and Wealth Inequality (2017)
I document a strong interplay between asset prices and wealth inequality (i) when stock returns are high, inequality increases (ii) higher inequality predicts lower stock returns. This corresponds to the basic prediction of a model where agents have heterogeneous preferences. Quantitatively, however, the model cannot match the excess volatility of asset prices without implying a wealth distribution with a tail thicker than the data. I suggest two parsimonious deviations to resolve this tension: (i) "live-fast-die-young dynamics", in which risk-tolerant investors remain levered only for a short period of time, (ii) time-varying investment opportunities for the rich relative to the rest.
Video of the Wealth Distribution with Regime Switches
Bank Exposure to Interest-Rate Risk and the Transmission of Monetary Policy with A. Landier, D. Sraer and D. Thesmar (2016)
We show that the cash-flow exposure of banks to interest rate risk, or income gap, affects the transmission of monetary policy to bank lending and real activity. In the cross-section of banks, income gap predicts the sensitivity of cash-flows and lending to interest rates. The effect of income gap is larger or similar in magnitude to that of previously identified factors, such as leverage, bank size or asset liquidity. To alleviate endogeneity concerns, we build loan-level data to control for firm-level demand shocks. This analysis also allows us to link banks' interest risk exposure to firm investment and employment.