Working Paper Revision
The Dynamics of the Racial Wealth Gap
Abstract: What drives the dynamics of the racial wealth gap? We answer this question using a dynamic stochastic general equilibrium heterogeneous-agents model. Our calibrated model endogenously produces a racial wealth gap matching that observed in recent decades along with key features of the current cross-sectional distribution of wealth, earnings, intergenerational transfers, and race. Our model predicts that equalizing earnings is by far the most important mechanism for permanently closing the racial wealth gap. One-time wealth transfers have only transitory effects unless they address the racial earnings gap, and return gaps only matter when earnings inequality is reduced.
Keywords: Wealth Dynamics; Racial Inequality;
JEL Classification: D31; D58; E21; E24; J7;
https://doi.org/10.26509/frbc-wp-201918r
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https://doi.org/10.26509/frbc-wp-201918r
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Bibliographic Information
Provider: Federal Reserve Bank of Cleveland
Part of Series: Working Papers
Publication Date: 2022-11-29
Number: 19-18R
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- Working Paper Revision: The Dynamics of the Racial Wealth Gap