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.
Original language | English (US) |
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Pages (from-to) | 45-86 |
Number of pages | 42 |
Journal | Review of Economic Studies |
Volume | 89 |
Issue number | 1 |
DOIs | |
State | Published - Jan 1 2022 |
Externally published | Yes |
All Science Journal Classification (ASJC) codes
- Economics and Econometrics
Keywords
- Consumption
- Continuous time
- Heterogeneous a
- Inequality
- Wealth distribution