Wealth Distribution and Interest Rates: Empirical Evidence for the US

Grüner, Hans Peter

URL: http://www.cepr.org/active/publications/discussion...
Additional URL: http://gruener.vwl.uni-mannheim.de/fileadmin/user_...
Document Type: Working paper
Year of publication: 2001
The title of a journal, publication series: Discussion Papers / CEPR
Volume: 3106
Place of publication: London
Publishing house: Centre for Economic Policy Research
ISSN: 0265-8003
Publication language: English
Institution: School of Law and Economics > VWL, Wirtschaftspolitik (Grüner 1999-)
Subject: 330 Economics
Abstract: Capital market theory predicts that the wealth distribution should a®ect interest rates. This paper empirically analyzes the relationship between the wealth distribution and interest rates in the US. We use data on wealth inequality from various sources. Measures of wealth inequality are linked positively to the real commercial paper rate and to the real rate on government securities. This result is consistent with predictions from capital market equilibrium models with moral hazard. Accordingly, rich individuals can only commit credibly to providing e®ort if the rate of return is not too high. When the rich are poorer, the rate of return has to be lower in order to guarantee entrepreneurial e®ort. Capital demand will therefore fall as inequality is reduced. The capital market is in equilibrium at a lower rate of return.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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