On a Unique Nondegenerate Distribution of Agents in the Huggett Model

CAMA Working Paper Series 19/2010

8 Pages Posted: 1 Sep 2010

See all articles by Timothy Kam

Timothy Kam

Australian National University - School of Economics

Junsang Lee

affiliation not provided to SSRN

Date Written: July 1, 2010

Abstract

The seminal work of Huggett [“The risk-free rate in heterogeneous-agent incomplete-insurance economies”, Journal of Economic Dynamics and Control, 1993, 17(5-6), 953-969] showed that there exists a unique stationary distribution of agent types, given by their individual states of asset and income endowment pairs. However, the question remains open if the equilibrium individual state space might turn out to be trivial, in the sense that every agent’s common borrowing constraint binds forever. If so, the invariant probability measure of agent types will place all mass on this minimal credit level. By invoking a simple comparative-static argument, we provide closure to this open question. We thus reinforce Huggett’s result of a unique stationary equilibrium distribution of agents by showing that it must also be one that is nontrivial or nondegenerate.

Keywords: Incomplete markets, Compactness, Individual state space, Stationary distribution

JEL Classification: C62, D31, D52

Suggested Citation

Kam, Timothy and Lee, Junsang, On a Unique Nondegenerate Distribution of Agents in the Huggett Model (July 1, 2010). CAMA Working Paper Series 19/2010, Available at SSRN: https://ssrn.com/abstract=1668206 or http://dx.doi.org/10.2139/ssrn.1668206

Timothy Kam (Contact Author)

Australian National University - School of Economics

Canberra, Australian Capital Territory 2601
Australia

Junsang Lee

affiliation not provided to SSRN ( email )

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