We recast the Aiyagari-Bewley-Huggett model of income and wealth distribution in continuous time. This workhorse model-as well as heterogeneous agent models more generally-then boils down to a system of partial differential equations, a fact we take advantage of to make two types of contributions. First, a number of new theoretical results: (1) an analytic characterization of the consumption and saving behaviors of the poor, particularly their marginal propensities to consume; (2) a closed-form solution for the wealth distribution in a special case with two income types; (3) a proof that there is a unique stationary equilibrium if the intertemporal elasticity of substitution is weakly greater than one. Second, we develop a simple, efficient and portable algorithm for numerically solving for equilibria in a wide class of heterogeneous agent models, including-but not limited to-the Aiyagari-Bewley-Huggett model.
Center for Computational Mathematics, Flatiron Institute