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The Wealth Distribution in a Precautionary Savings Model with Capital Income Risk

Author

Listed:
  • Hoang Khieu
  • Roberto Leon-Gonzalez

Abstract

Explaining the evolution of the wealth distribution requires understanding the dynamics of consumption and savings. We analyze the dynamics of consumption and savings under uncertainty in labour income and the rate of return on wealth, which are two-state continuous time Markov processes. The rate of return is persistent and has a right-skewed distribution. We show that the wealth accumulation process has a stationary distribution if the (unconditional) expected change in the rate of return is sufficiently small or large. In particular, when the expected change in the rate of return is moderate, the wealth accumulation process is non-stationary.

Suggested Citation

  • Hoang Khieu & Roberto Leon-Gonzalez, 2024. "The Wealth Distribution in a Precautionary Savings Model with Capital Income Risk," Annals of Economics and Statistics, GENES, issue 155, pages 45-90.
    • Handle: RePEc:adr:anecst:y:2024:i:155:p:45-90
    DOI: 10.2307/48795037
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    More about this item

    Keywords

    Dynamics of Wealth and Consumption; Stationary Wealth Distribution; Capital and Labour Income Risk; Precautionary Savings;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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