Secular stagnation and inequality
Motivated by the broad trends of rising inequality and falling interest rates since the 1980s, the authors will build a macroeconomic model to show how much higher income inequality has reduced the natural rate of interest through increased overall saving. The potential consequences of rising inequality for the level of aggregate economic activity is an active research area and one that we have funded in the past. This project will complement previous grants and push the research frontier by uncovering key insights about the link between inequality and the natural interest rate. The research is highly relevant to the active debates over secular stagnation and puts the researchers’ bargaining-power framework (as opposed to more technological changes such as declining investment costs) at the center of their evaluation of the increase in U.S. income inequality.