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Capital Income Risk and the Dynamics of the Wealth Distribution

Hoang Khieu () and Klaus Wälde ()

No 7970, CESifo Working Paper Series from CESifo

Abstract: Labour income follows a deterministic growth trend and fluctuates between two values. Interest rates are drawn initially, fluctuate between two values and can differ in their arrival rates. Low interest rates imply a stationary long-run wealth distribution, high interest rates imply exploding wealth dynamics. When matching the NLSY 79 evolution of the wealth distribution from 1986 to 2008, we obtain a fit of 96:1%: With a more flexible interest rate distribution, employing “superstar states”, the fit can increase to 96:7%. For the fit of 96:1%, the standard deviation of model returns is much lower than the empirical standard deviation.

Keywords: dynamics of wealth distributions; NLSY 1979 cohort; capital income risk; Fokker-Planck equations (search for similar items in EconPapers)
JEL-codes: C60 D30 E20 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-mac
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Working Paper: Capital Income Risk and the Dynamics of the Wealth Distribution (2018) Downloads
Working Paper: Capital Income Risk and the Dynamics of the Wealth Distribution (2018) Downloads
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