TY - JOUR A1 - Clemens, Christiane A1 - Heinemann, Maik T1 - The effects of international financial integration in a model with heterogeneous firms and credit frictions JF - Macroeconomic Dynamics N2 - This paper examines the consequences of international financial integration in a two-sector standard incomplete markets model with occupational choice under risk and financial constraints affecting entrepreneurial activity. We endogenize international productivity differences and discuss the implications of international integration for the macroeconomy, inequality, and welfare. Lending countries are characterized by tighter domestic constraints and experience an increase in gross national product, whereas the gross domestic product effect is ambiguous. We conclude that international integration is beneficial only for economies where there are substantial financial constraints on entrepreneurial activity. Otherwise, a majority of households suffer, due to the unequal distribution of welfare gains and losses across the heterogeneous population. KW - Financial Constraints KW - International Capital Flows KW - Heterogeneous Agents KW - Occupational Choice Y1 - 2018 U6 - https://doi.org/10.1017/S1365100517000979 SN - 1365-1005 SN - 1469-8056 VL - 23 IS - 7 SP - 2815 EP - 2844 PB - Cambridge Univ. Press CY - New York ER - TY - JOUR A1 - Clemens, Marius A1 - Eydam, Ulrich A1 - Heinemann, Maik T1 - Inequality over the business cycle: the role of distributive shocks JF - Macroeconomic dynamics N2 - This paper examines how wealth and income inequality dynamics are related to fluctuations in the functional income distribution over the business cycle. In a panel estimation for OECD countries between 1970 and 2016, although inequality is, on average countercyclical and significantly associated with the capital share, one-third of the countries display a pro- or noncyclical relationship. To analyze the observed pattern, we incorporate distributive shocks into an RBC model, where agents are ex ante heterogeneous with respect to wealth and ability. We find that whether wealth and income inequality behave countercyclically or not depends on the elasticity of intertemporal substitution and the persistence of shocks. We match the model to quarterly US data using Bayesian techniques. The parameter estimates point toward a non-monotonic relationship between productivity and inequality fluctuations. On impact, inequality increases in response to TFP shocks but subsequently declines. Furthermore, TFP shocks explain 17% of inequality fluctuations. KW - business cycle KW - income and wealth inequality KW - distributive shocks KW - D31 KW - E25 KW - E32 Y1 - 2021 U6 - https://doi.org/10.1017/S1365100521000523 SN - 1365-1005 SN - 1469-8056 VL - 27 IS - 3 SP - 571 EP - 600 PB - Cambridge University Press CY - Cambridge ER - TY - JOUR A1 - Clemens, Christiane A1 - Heinemann, Maik T1 - Endogenous growth and wealth inequality under incomplete markets and idiosyncratic risk JF - Journal of macroeconomics N2 - This paper describes the equilibrium properties and dynamics of a model which combines the key features of the standard incomplete market model (Aiyagari, 1994) with a standard endogenous growth mechanism to gain a deeper understanding of the feedback effects between growth and wealth inequality in the presence of credit frictions and idiosyncratic risk. We characterize growth equilibria and find that a balanced growth path not necessarily exists if households are subject to ad hoc borrowing constraints. Growth, inequality, and risk are positively related in our model, but we also identify a hump-shaped relationship between welfare and risk, indicating a tradeoff relationship between risk-pooling and growth in the determination of welfare. The growth rate responds to changes in the wealth distribution and displays transitional dynamics towards the balanced growth path. (C) 2015 Elsevier Inc. All rights reserved. KW - Endogenous growth KW - Borrowing constraints KW - Wealth distribution KW - Idiosyncratic risk KW - Heterogeneous agents Y1 - 2015 U6 - https://doi.org/10.1016/j.jmacro.2015.05.008 SN - 0164-0704 SN - 1873-152X VL - 45 SP - 300 EP - 317 PB - Elsevier CY - Amsterdam ER -