Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/195857 
Authors: 
Year of Publication: 
2018
Citation: 
[Journal:] Risks [ISSN:] 2227-9091 [Volume:] 6 [Issue:] 3 [Publisher:] MDPI [Place:] Basel [Year:] 2018 [Pages:] 1-15
Publisher: 
MDPI, Basel
Abstract: 
We investigate masked financial instability caused by wealth inequality. When an economic sector is decomposed into two subsectors that possess a severe wealth inequality, the sector in entirety can look financially stable while the two subsectors possess extreme financially instabilities of opposite nature, one from excessive equity, the other from lack thereof. The unstable subsector can result in further financial distress and even trigger a financial crisis. The market instability indicator, an early warning system derived from dynamical systems applied to agent-based models, is used to analyze the subsectoral financial instabilities. Detailed mathematical analysis is provided to explain what financial instabilities can arise amid seemingly stable economy and positive market data. The theoretical conjecture is verified by historical macroeconomic time series of the United States households among whom a substantial wealth inequality has been officially confirmed.
Subjects: 
wealth inequality
financial stability
agent-based model
dynamical systems
JEL: 
C02
E01
G01
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
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