An equilibrium model of wealth distribution

Robust Permanent Income in General Equilibrium

“…It is worth noting that this part of saving measures consumers' intertemporal consumption smoothing motive, and is independent of the degree of risk aversion and labor income uncertainty. Unlike the benchmark model with the timeadditive utility, in the RU case the Ψ t term increases with the value of total wealth (s t ) when the consumers are relatively more impatient, i.e., δ > r. This result is consistent with that obtained in Wang (2006) in which the dissaving effect is generated by the endogenous discount factor. In addition, the Ψ t term can also capture the intuition that richer consumers are more impatient and thus dissave more in the long run used to model the endogenous discount factor.…”

“…In the monetary policy literature, this equilibrium real interest rate is also called the natural rate of interest or the neutral rate of interest, which simply refers to the equilibrium interest rate that is consistent with full employment and stable inflation. 45 Within the context of a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model, it is the equilibrium rate when the economy has no wage and price rigidities and no shocks to wage markups, price markups, or technology. This concept is important because it helps to determine the level at which policymakers should set the interest rate to be given the current inflation and economic conditions.…”

Incomplete market dynamics and cross-sectional distributions

“…24 Wang (2007) solves for the optimal consumption-portfolio rule of an agent with CARA utility subject to a fairly general income process, characterizes the general equilibrium in a Bewley (1986) economy (only riskless lending and borrowing is allowed), and analytically relates the moments of the wealth distribution to those of the income distribution. Since his model features labor income shock but abstracts from investment and does not refer to the power law, my results are highly complementary.…”

“…Papers that obtain closed-form solutions in the literature either use constant absolute risk aversion (CARA) preferences (Calvet, 2001;Angeletos andCalvet, 2005, 2006;Wang, 2007), additive CRRA preferences (Constantinides and Duffie, 1996;Saito, 1998;Krebs, 2003aKrebs, ,b, 2006, or CRRA/CEIS recursive preferences (Angeletos, 2007;Angeletos andPanousi, 2009, 2011;Panousi, 2010). Since I use general homothetic CRRA recursive preferences, my results complement those using CARA and subsume those using CRRA as special cases (at least in terms of preferences).…”

Age, Luck, and Inheritance

“…Huberman and Adamic (1999) use the same argument to explain the distribution of the number of web pages per site of the World Wide Web. 6 For a recent paper giving closed forms in an Aiyagari model with stochastic labor income rather than stochastic returns, see Wang (2007).…”