Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
956792 | Journal of Economic Theory | 2014 | 39 Pages |
Abstract
The size distributions of many economic variables seem to obey the double power law, that is, the power law holds in both the upper and the lower tails. I explain this emergence of the double power law-which has important economic, econometric, and social implications-using a tractable dynamic stochastic general equilibrium model with heterogeneous agents subject to aggregate and idiosyncratic investment risks. I establish theoretical properties such as existence, uniqueness, and constrained efficiency of equilibrium, and provide a numerical algorithm that is guaranteed to converge. The model is widely applicable: it allows for arbitrary homothetic CRRA recursive preferences, an arbitrary Markov process governing aggregate shocks, and an arbitrary number of technologies and assets with arbitrary portfolio constraints.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Alexis Akira Toda,