6533b852fe1ef96bd12aa434
RESEARCH PRODUCT
A Note on Laws of Motion for Aggregate Distributions
Damir Stijepicsubject
050208 financeFormalism (philosophy)media_common.quotation_subject05 social sciencesAggregate (data warehouse)Newton's laws of motionMotion (physics)Interest rateFormalism (philosophy of mathematics)Classical mechanicsAggregate distributionComponent (UML)0502 economics and businessFokker–Planck equationWealth distributionStatistical physics050207 economicsmedia_commonMathematicsdescription
I derive the law of motion for the aggregate distribution directly from the laws of motion for the individuals’ states. By relying on concepts from measure theory, the derivation is concise and intuitive. I address random shocks both at the micro level and at the macro level. Micro-level shocks completely cancel at the aggregate level provided that a law of large numbers applies. Therefore, the law of motion for the aggregate distribution is a deterministic process in the absence of macro-level uncertainty. If there are macro-level risks, the law of motion for the aggregate distribution exhibits a stochastic component additionally. I illustrate the formalism in a model of wealth accumulation with stochastic interest rates, deriving the law of motion for the aggregate wealth distribution.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2020-01-01 | Theoretical Economics Letters |