Journal Article

The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing

Thomas Piketty

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 64, issue 2, pages 173-189
Published in print April 1997 | ISSN: 0034-6527
Published online April 1997 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.2307/2971708
The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing

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With decreasing returns and first-best credit, the long-run interest rate and aggregate output are uniquely determined, and wealth dispersion among individuals or firms is irrelevant. Introducing credit rationing into the Solow model modifies these conclusions. Multiple stationary interest rates and wealth distributions can exist because higher initial rates can be self-reinforcing through higher credit rationing and lower capital accumulation. The wealth accumulation process is ergodic in every steady state, but wealth mobility is lower with higher steady-state interest rates. Aggregate output is higher in steady states with lower interest rates because credit is better allocated. Short-run interest rate or distribution shocks can be self-sustaining and can have long-run effects on output through the induced dynamics of the wealth distribution and credit rationing.

Journal Article.  0 words. 

Subjects: Economics

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