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Journal of Undergraduate Research

Keywords

effective macroeconomic modeling, distribution of wealth, stochastic changes

College

Family, Home, and Social Sciences

Department

Economics

Abstract

Many macroeconomic models have trouble matching the high end of the distribution of wealth in the economy. To correct this problem, we set out to build a model that includes individual agents experiencing stochastic changes to their income levels. These stochastic changes thus model real life risk and encourage precautionary saving. We built the theoretical framework for a large scale macroeconomic model in which individuals take into consideration the possible variability of their future income and alter their saving behaviors accordingly. We have made significant progress in creating a computer program that will allow us to calibrate our model to the US economy, simulate it, and analyze the results.

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