The Invariant Distribution of Wealth and Employment Status in a Small Open Economy with Precautionary Savings

Arbeitspapier

We study optimal savings in continuous time with exogenous transitions between employment and unemployment as the only source of uncertainty in a small open economy. We prove the existence of an optimal consumption path. We exploit that the dynamics of consumption and wealth between jumps can be expressed as a Fuchsian system. We derive conditions under which an invariant joint distribution for the state variables, i.e., wealth and labour market status, exists and is unique. We also provide conditions under which the distribution of these variables converges to the invariant distribution. Our analysis relies on the notion of T-processes and applies results on the stability of Markovian processes from Meyn and Tweedie (1993a, b,c).

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 7397

Classification and Topics

• Classification: Wirtschaft ; Existence and Stability Conditions of Equilibrium ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Labor Turnover; Vacancies; Layoffs
• Subject: uncertainty in continuous time ; counting process ; existence ; uniqueness ; stability

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bayer, Christian ; Rendall, Alan D. ; Wälde, Klaus
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/191422
• Last update: 10.03.2025, 11:44 AM CET