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

Yves Achdou, Jiequn Han, Jean Michel Lasry, Pierre Louis Lions and Ben Moll

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: wealth distribution; heterogeneous a; consumption; inequality; continuous time (search for similar items in EconPapers)
JEL-codes: C61 C63 D14 D31 E21 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2022-01-01
New Economics Papers: this item is included in nep-cwa, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Published in Review of Economic Studies, 1, January, 2022, 89(1), pp. 45 - 86. ISSN: 0034-6527

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:107422

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