Matching and Saving in Continuous Time: Theory

32 Pages Posted: 2 May 2010

See all articles by Christian Bayer

Christian Bayer

Weierstras Institute for Applied Analysis and Stochastics (WIAS)

Klaus Wälde

University of Mainz; CESifo (Center for Economic Studies and Ifo Institute); UCL at Louvain la Neuve

Date Written: April 2010

Abstract

We analyse optimal saving of risk-averse households when labour income stochastically jumps between two states. The generalized Keynes-Ramsey rule includes a precautionary savings term. A phase diagram analysis illustrates consumption and wealth dynamics within and between states. There is an endogenous lower and upper limit for wealth. We derive the Fokker-Planck equations for the densities of individual wealth and employment status. These equations also characterize the aggregate distribution of wealth and allow us to describe general equilibrium. An optimal consumption path exists and distributions converge to a unique limiting distribution.

Keywords: matching model, optimal saving, incomplete markets, Poisson uncertainty, Fokker-Planck equations, general equilibrium

JEL Classification: D91, E24, J63, J64

Suggested Citation

Bayer, Christian and Wälde, Klaus, Matching and Saving in Continuous Time: Theory (April 2010). CESifo Working Paper Series No. 3026, Available at SSRN: https://ssrn.com/abstract=1597579

Christian Bayer

Weierstras Institute for Applied Analysis and Stochastics (WIAS) ( email )

Mohrenstr. 39
Berlin, 10117
Germany

Klaus Wälde (Contact Author)

University of Mainz ( email )

Mainz School of Management and Economics
Mainz, 55128
Germany
+49 6131 3920143 (Phone)

HOME PAGE: http://www.waelde.com

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

UCL at Louvain la Neuve

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
66
Abstract Views
584
rank
402,365
PlumX Metrics