Matching and Saving in Continuous Time: Theory

Christian Bayer and Klaus Wälde

No 3026, CESifo Working Paper Series from CESifo

Abstract: We analyse optimal saving of risk-averse households when labour income stochastically jumps between two states. The generalized Keynes-Ramsey rule includes a precautionary savings term. A phase diagram analysis illustrates consumption and wealth dynamics within and between states. There is an endogenous lower and upper limit for wealth. We derive the Fokker-Planck equations for the densities of individual wealth and employment status. These equations also characterize the aggregate distribution of wealth and allow us to describe general equilibrium. An optimal consumption path exists and distributions converge to a unique limiting distribution.

Keywords: matching model; optimal saving; incomplete markets; Poisson uncertainty; Fokker-Planck equations; general equilibrium (search for similar items in EconPapers)
JEL-codes: D91 E24 J63 J64 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Matching and Saving in Continuous Time: Theory (2010)
Working Paper: Matching and Saving in Continuous Time: Theory (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_3026

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