Growing inequality, financial fragility, and macroeconomic dynamics: An agent based model

Abstract

Our aim is to analyse the interplay between growing inequality and financial fragility in a complex macroeconomic system. In order to do this, we propose a macroeconomic microfounded framework with heterogeneous agents in which households, firms, and banks interact according to decentralised matching processes. The main result is that growing inequality leads to more macroeconomic volatility, increasing the likelihood of observing large unemployment crises. © Springer-Verlag Berlin Heidelberg 2014.