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Ergodic Chaos and Aggregate Stability: A Deterministic Discrete-Choice Model of Wealth Distribution Dynamics

Author

Listed:
  • Takashi Kamihigashi

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

This paper studies wealth distribution dynamics in a small open economy with a continuum of consumers indexed by initial wealth. Each of them solves a discrete-choice problem whose optimal policy function exhibits ergodic chaos. We show that for any initial distribu- tion of wealth given by a density, the wealth distribution converges to a unique invariant distribution, and aggregate wealth converges to the corresponding value. Thus ergodic chaos leads to aggregate stability rather than instability. These results are illustrated with various nu- merical examples.

Suggested Citation

  • Takashi Kamihigashi, 2012. "Ergodic Chaos and Aggregate Stability: A Deterministic Discrete-Choice Model of Wealth Distribution Dynamics," Discussion Paper Series DP2012-20, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2012-20
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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2012-20.pdf
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    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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