paper

The Income Fluctuation Problem and the Evolution of Wealth

arXiv:1905.13045 · doi:10.1016/j.jet.2020.105003

Abstract

We analyze the household savings problem in a general setting where returns on assets, non-financial income and impatience are all state dependent and fluctuate over time. All three processes can be serially correlated and mutually dependent. Rewards can be bounded or unbounded and wealth can be arbitrarily large. Extending classic results from an earlier literature, we determine conditions under which (a) solutions exist, are unique and are globally computable, (b) the resulting wealth dynamics are stationary, ergodic and geometrically mixing, and (c) the wealth distribution has a Pareto tail. We show how these results can be used to extend recent studies of the wealth distribution. Our conditions have natural economic interpretations in terms of asymptotic growth rates for discounting and return on savings.

arXiv comment49 pages, 3 figures. arXiv admin note: text overlap with arXiv:1812.01320

References in corpus (1)

Cited by in corpus (10)