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| Hoang Van Khieu and Roberto Leon-Gonzalez |
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| ''The distributions of annual earnings and interest rates in a continuous time Markov chain economy'' |
| ( 2024, Vol. 44 No.3 ) |
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| In this note, we show that two-state continuous time Markov processes can generate empirically plausible distributions of annual earnings and interest rates. Annual earnings and interest rates in continuous time models are functions of a path integral over the instantaneous values and therefore continuously distributed. We develop an algorithm computing the cross-sectional distributions of annual earnings and interest rates. This algorithm can be used to simulate annual income and interest rates in continuous time models or calibrate the fundamental parameters of the continuous time Markov processes. |
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| Keywords: path integral, continuous time Markov process, annual interest rate,
annual earnings |
JEL: C6 - Mathematical Methods and Programming: General
D3 - Distribution: General |
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| Manuscript Received : May 17 2024 | | Manuscript Accepted : Sep 30 2024 |
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