Financial and Total Wealth Inequality with Declining Interest Rates

Financial wealth inequality and long-term real interest rates track each other closely over the post-war period. We investigate how much of the increase in measured financial wealth inequality can be accounted for by the decline in rates, and study the implications for inequality in total wealth (lifetime consumption). To do so, we measure the exposure of household-level financial portfolios to interest rates. We find enough heterogeneity in household portfolio revaluations to explain the entire rise in financial wealth inequality since the 1980s. A standard incomplete markets model calibrated to these data implies that the low-wealth young lose when rates decline, while the high-wealth old gain.