We would like to thank Ed Prescott, Victor Ríos-Rull, Javier Díaz-Giménez, Berthold Herrendorf, Josep Pijoan-Mas, Darin Lee, and two anonymous referees for helpful comments. We also thank seminar participants at CEMFI, the University of Pennsylvania, Arizona State University, Carlos III, FEDEA, Universidad Complutense, Universidad de Málaga, EFACR, NBER Summer Institute 2002, Université Catholique de Louvain, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of New York, Universidade de Madeira, and CERGE-EI. Díaz thanks the Dirección General de Investigación, project SEJ2004-00968, for financial support. Luengo-Prado is indebted to the Dirección General de Investigación, project BEC2000-0173, for financial support. A previous version of this article was entitled “Precautionary Saving and Wealth Distribution with Durable Goods.” Please address correspondence to: María José Luengo-Prado, Department of Economics, Northeastern University, 301 Lake Hall, 360 Huntington Avenue, Boston, MA 02155-5000. Phone: 617 373 4520. Fax: 617 373 3640. E-mail: firstname.lastname@example.org.
THE WEALTH DISTRIBUTION WITH DURABLE GOODS*
Article first published online: 24 FEB 2010
© (2010) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
International Economic Review
Volume 51, Issue 1, pages 143–170, February 2010
How to Cite
Díaz, A. and Luengo-Prado, M. J. (2010), THE WEALTH DISTRIBUTION WITH DURABLE GOODS. International Economic Review, 51: 143–170. doi: 10.1111/j.1468-2354.2009.00574.x
Manuscript received May 2005; revised April 2008.
- Issue published online: 24 FEB 2010
- Article first published online: 24 FEB 2010
In the United States, the distribution of houses is less egalitarian than that of earnings for the total population, but these two distributions are remarkably similar for homeowners. Additionally, housing as a fraction of total wealth decreases with the level of wealth. In order to understand the different factors that account for these wealth composition patterns, we introduce illiquid houses and collateral credit in a general equilibrium model of heterogeneous agents with idiosyncratic uncertainty. A combination of very persistent shocks to earnings, frictions in the housing market, and a rental market is necessary to obtain numbers in line with the evidence.