Inequality, Financial Integration and Global Imbalances

Three defining economic phenomena of the last 30-years are the evolution of inequality both within and across countries, the massive expansion of capital flows following financial liberalisation, and the secular decline of real interest rates. The phenomena all relate to heterogeneity along different dimensions.

My proposed research will uniquely explore how these phenomena are related to each other through heterogeneity.

How does heterogeneity, both within and across countries, determine aggregate macroeconomic variables, such as the current account balance, Gross Domestic Product, and real interest rates? I tackle this question empirically and theoretically. First, I empirically analyze the relationship between capital flows and inequality across countries.

This empirical analysis forms a key pillar underpinning the whole research agenda.

In the second theme, I develop a novel theoretical framework featuring heterogeneous countries and households, with limited commitment to explain these findings.

I will first focus on advanced economies like Sweden and the U.S., then the entire world economy across all levels of development.

The third theme examines the forces behind the fall in interest rates observed worldwide, exploiting the rich heterogeneity across households and countries of the model in Theme II.

In this Theme, I will employ my theoretical framework to understand the causes of the secular decline in interest rates worldwide.