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

Achdou, Yves, Han, Jiequn, Lasry, Jean Michel, Lions, Pierre Louis and Moll, Ben ORCID: 0009-0003-6067-359X (2022) Income and wealth distribution in macroeconomics: a continuous-time approach. Review of Economic Studies, 89 (1). 45 - 86. ISSN 0034-6527

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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: (1) an analytic characterization of the consumption and saving behaviour of the poor, particularly their marginal propensities to consume; (2) a closed-form solution for the wealth distribution in a special case with two income types; (3) a proof that there is a unique stationary equilibrium if the intertemporal elasticity of substitution is weakly greater than one. 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:	Article
Official URL:	https://academic.oup.com/restud
Additional Information:	© 2021 The Authors
Divisions:	Economics
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	C - Mathematical and Quantitative Methods > C6 - Mathematical Methods and Programming > C61 - Optimization Techniques; Programming Models; Dynamic Analysis C - Mathematical and Quantitative Methods > C6 - Mathematical Methods and Programming > C63 - Computational Techniques D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E21 - Macroeconomics: Consumption; Saving; Aggregate Physical and Financial Consumer Wealth D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Personal Finance
Date Deposited:	11 Nov 2020 11:36
Last Modified:	16 Nov 2024 01:27
URI:	http://eprints.lse.ac.uk/id/eprint/107422

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