Inequality, Risk, and Business Cycles

This paper previously circulated under the title “Inequality and Business Cycles.” We thank Manuel Amador, Andrew Atkeson, Marco Bassetto, Christian Bayer, Anmol Bhandari, Javier Bianchi, Luigi Bocola, Benjamin Born, Tobias Broer, Davide Debortoli, Marco Del Negro, Ruben Dominguez-Diaz, Axelle Ferrière, Jordi Galí, Jose Elias Gallegos, Joe Hazell, Jonathan Heathcote, Kyle Herkenhoff, Diego Känzig, Alisdair McKay, Ben Moll, Fabrizio Perri, Carolin Pflueger, Christian Pröbsting, Ricardo Reis, Matt Rognlie, Frank Schorfheide, Ludwig Straub, Paolo Surico, Gianluca Violante and many seminar and conference participants for comments and suggestions. We are also grateful to Fabrizio Perri for sharing the data on enterprise values and free cash flows used in section 6.2. Shuge Feng and Giovanni Sciacovelli have provided invaluable research assistance. Bilbiie gratefully acknowledges financial support from the Janeway Institute and the Keynes Fund at Cambridge, and the hospitality of IGIER at Bocconi University, EIEF, and the Federal Reserve Bank of Minneapolis during part of the work on this paper. Tambalotti’s contribution was part of a continued collaboration based on work done prior to joining Amazon. This paper and its contents are not related to Amazon and do not reflect the position of the company and its subsidiaries, nor do they necessarily reflect the views of the National Bureau of Economic Research.

• September 26, 2023