Essays on heterogeneity and macroeconomic dynamics

Abstract

Limited asset market participation is a well-known stylized fact and a widespread phenomenon even in developed economies. While existing models have already examined the effects of social security and its reforms on welfare and inequality, little attention has been devoted to the role of public pensions in the context of limited asset market participation. I develop a quantitative overlapping generations general equilibrium model where heterogenous agents face a financial friction limiting access to capital markets. I examine how, in presence of the market imperfection, a public pay-as-you-go system affects consumption and wealth inequality and compare the results with a standard model that does not account for limited asset market participation. In a second exercise, I study the implications, in terms of inequality, of an increase in the retirement age in response to a population ageing shock. I find that limited asset participation is important for the analysis of the impact of social security on overall inequality and on inequality within age groups.