Computation of Stationary Distributions

Abstract

This chapter introduces readers to the modeling, computation of heterogeneous-agent economies. In this kind of problem, one has to compute the distribution of the individual state variable(s). In the first part, Heer, Maußner present avery simple heterogeneous-agent model with aspecial form of preferences — Gorman preferences — that allows to use the representative household’s policy function for the computation of the aggregate dynamics. The second part considers models in which the distribution of wealth, income affects the dynamics of the aggregate economy. Applications cover the puzzle of the low risk-free interest rate, the distributional effects of switching from an income tax to aconsumption tax. The chapter concludes with ashort survey of recent literature on the theory of income distribution.