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Income and wealth distribution in macroeconomics: a continuous-time approach

Achdou, Yves, Han, Jiequn, Lasry, Jean Michel, Lions, Pierre Louis and Moll, Benjamin (2017) Income and wealth distribution in macroeconomics: a continuous-time approach. NBER Working Paper (23732). National Bureau of Economic Research, Cambridge, MA.

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Identification Number: 10.3386/w23732

Abstract

We recast the Aiyagari-Bewley-Huggett model of income and wealth distribution in continuous time. This workhorse model – as well as heterogeneous agent models more generally – then boils down to a system of partial differential equations, a fact we take advantage of to make two types of contributions. First, a number of new theoretical results: (i) an analytic characterization of the consumption and saving behavior of the poor, particularly their marginal propensities to consume; (ii) a closed-form solution for the wealth distribution in a special case with two income types; (iii) a proof that there is a unique stationary equilibrium if the intertemporal elasticity of substitution is weakly greater than one; (iv) characterization of “soft” borrowing constraints. Second, we develop a simple, efficient and portable algorithm for numerically solving for equilibria in a wide class of heterogeneous agent models, including – but not limited to – the Aiyagari-Bewley-Huggett model.

Item Type: Monograph (Working Paper)
Official URL: https://www.nber.org/papers.html
Additional Information: © 2017 The Authors
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
JEL classification: D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions
E - Macroeconomics and Monetary Economics > E0 - General > E00 - General
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E21 - Macroeconomics: Consumption; Saving; Aggregate Physical and Financial Consumer Wealth
Date Deposited: 06 Nov 2019 16:30
Last Modified: 13 Jan 2020 14:42
URI: http://eprints.lse.ac.uk/id/eprint/102405

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