Computation of the Stationary Wealth Distribution in a Heterogeneous Agent Based Economy with Employment Uncertainty

• Activity Number: 241
• Type: Contributed
• Date/Time: Monday, August 2, 2010 : 2:00 PM to 3:50 PM
• Sponsor: Business and Economic Statistics Section
• Author(s): Muffasir Badshah*+ and Anuj Srivastava and Paul Beaumont
• Companies: Florida State University and Florida State University and Florida State University
• Keywords: Markov process ; The Perron-Frobenius Theorem ; Wealth Distributions ; Dynamic General Equilibrium Modeling

Abstract

This paper aims at analyzing a macroeconomy with a large number of infinitely lived households that make rational decisions about consumption and wealth savings in the light of future employment uncertainty. The heterogeneous population structure arises when households differ in wealth and employment status against which they cannot insure. In this framework, the household wealth evolution is modeled as a mixture Markov process. The stationary wealth distributions are obtained using eigen structures of transition matrices under the Perron-Frobenius theorem. We utilize this step repeatedly to find the equilibrium state of the system which leads to an efficient framework for studying the dynamic general equilibrium. A systematic evaluation of the equilibrium state under different initial conditions is further presented and analyzed.