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

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

No 23732, NBER Working Papers from National Bureau of Economic Research, Inc

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: (i) an analytic characterization of the consumption and saving behavior of the poor, particularly their marginal propensities to consume; (ii) a closed-form solution for the wealth distribution in a special case with two income types; (iii) a proof that there is a unique stationary equilibrium if the intertemporal elasticity of substitution is weakly greater than one; (iv) characterization of “soft” borrowing constraints. 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.

JEL-codes: D31 E00 E21 (search for similar items in EconPapers)
Date: 2017-08
New Economics Papers: this item is included in nep-cmp, nep-dge and nep-mac
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Published as Yves Achdou & Jiequn Han & Jean-Michel Lasry & Pierre-Louis Lions & Benjamin Moll, 2022. "Income and Wealth Distribution in Macroeconomics: A Continuous-Time Approach," The Review of Economic Studies, vol 89(1), pages 45-86.

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