This paper analyzes the role of wealth distribution in macroeconomics through investment in human capital. It is shown that in the presence of credit markets' imperfections and indivisibilities in investment in human capital, the initial distribution of wealth affects aggregate output and investment both in the short and in the long run, as there are multiple steady states. This paper therefore provides an additional explanation for the persistent differences in per-capita output across countries. Furthermore, the paper shows that cross-country differences in macroeconomic adjustment to aggregate shocks can be attributed, among other factors, to differences in wealth and income distribution across countries.

We study the cyclical effects of the timing of durable goods purchases in a general equilibrium model in which both durable and non-durable goods are consumed and the durable good is lumpy, At the microeconomic level, the timing of durable goods purchases supplies some insulation for nondurable consumption over the cycle. At the macroeconomic level, the timing decisions tend to amplify and propagate wealth and income shocks. Our model also allows for endogenous price determination. When the price of the durable changes due to inflexibility of workers between sectors, the effect of adverse shocks is even stronger and longer.