Recent empirical work has demonstrated a positive correlation between grandparent-child wealth rank, even after controlling for parent-child wealth rank, and a positive correlation between dynastic wealth ranks across almost six hundred years. We show that a simple heterogeneous agents model with idiosyncratic wealth returns generates a realistic wealth distribution, but fails to capture these long-run patterns of wealth mobility. An auto-correlated returns specification of this model also fails to capture both short- and long-run mobility. However, an extension of the heterogeneous agents model that includes permanent heterogeneity in wealth returns is able to simultaneously match the wealth distribution and short- and long-run wealth mobility.
ASJC Scopus subject areas
- Economics and Econometrics