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

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 partial differential equations, fact we take advantage make two types contributions. First, number new theoretical results: (1) an analytic characterization consumption saving behaviour poor, particularly their marginal propensities consume; (2) closed-form solution for special case with types; (3) proof that there is unique stationary equilibrium if intertemporal elasticity substitution weakly greater than one. Second, develop simple, efficient portable algorithm numerically solving equilibria wide class models, including—but not limited to—the model.