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

  • Christian Bayer


    (Department of Mathematics, University of Vienna, Austria)

  • Klaus Waelde


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

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.

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Paper provided by Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz in its series Working Papers with number 1110.

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Length: 48 pages
Date of creation: 21 Jul 2011
Date of revision: 21 Jul 2011
Handle: RePEc:jgu:wpaper:1110
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