A General Equilibrium Model of Earnings, Income, and Wealth

We develop a general equilibrium model of earnings, income and wealth heterogeneity in continuous time. We extend existing analytical and numerical methods to solve the model. We calibrate the model to U.S. data and find that stochastic interest rates provide a mechanism to link earnings, income and wealth distributions. We use this connection to demonstrate that an increase in unemployment benefits leads to a rise in steady state wealth inequality measured by the Gini coefficient.