Violeta Gutkowski: Wage Inequality and Interest Rates

Violeta Gutkowski was supported in the first semester to work on a research paper examining the extent to which rising wage inequality has contributed to falling interest rates since the late 1980’s. The underlying idea is that because the marginal propensity to consume falls with income, higher inequality raises the supply of savings. Analyzing the issue quantitatively in the setting of overlapping generations models, she concluded that observed inequality was insufficient to account for most of the decline in interest rates. She also examined (but again, rejected) the possibility that increased uncertainty about the future wages at the horizon of generations could induce a rise in savings sufficient to have reduced interest rates.

Component Location