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Describing the Dynamics of Distributions in Search and Matching Models by Fokker-Planck Equations

Author

Listed:
  • Christian Bayer

    () (Department of Mathematics, University of Vienna, Austria)

  • Klaus Waelde

    () (Department of Economics, Johannes Gutenberg-Universitaet Mainz, Germany)

Abstract

The analysis of distributions is central to search and matching models. Wage distributions are a central concern but distributions of productivities, fi?rm types, human capital, entitlement to unemployment benefi?ts and wealth become increasingly important. We present a method - the Fokker-Planck equations - which allows to describe and analyse the dynamics of distributions in a very general way. We illustrate this approach by analysing optimal saving of risk-averse households in a frictional labour market. Our Fokker-Planck equations describe the evolution of the joint distribution of labour market status and wealth. A very intuitive interpretation is provided.

Suggested Citation

  • Christian Bayer & Klaus Waelde, 2011. "Describing the Dynamics of Distributions in Search and Matching Models by Fokker-Planck Equations," Working Papers 1110, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 21 Jul 2011.
  • Handle: RePEc:jgu:wpaper:1110
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    References listed on IDEAS

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    Cited by:

    1. Bolle Friedel & Otto Philipp E., 2016. "Matching as a Stochastic Process," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 236(3), pages 323-348, May.

    More about this item

    Keywords

    frictional labour markets; optimal saving; incomplete markets; Poisson uncertainty; Fokker-Planck equations; general equilibrium;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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