Income and Wealth Distribution in Macroeconomics: A Continuous-Time Approach

Yves Achdou, Jiequn Han, Jean-Michel Lasry, Pierre-Louis Lionse and Benjamin Moll

The Review of Economic Studies, 2022, vol. 89, issue 1, 45-86

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; D14; D31; E21; C61; C63 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (60)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:89:y:2022:i:1:p:45-86.

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