FROM DISCRETE TO CONTINUOUS-TIME TRANSITION MATRICES IN INTRA-DISTRIBUTION DYNAMICS ANALYSIS: AN APPLICATION TO PER CAPITA WEALTH IN EUROPE

Authors

  • María Hierro,

    Corresponding author
    1. Department of Economics, University of Cantabria, Santander, Spain
    • Correspondence: María Hierro, Department of Economics, University of Cantabria, Avda. los Castros s/n, 39005-Santander, Spain. Tel: +34 942 202228; Fax: +34 942 201603; Email: maria.hierro@unican.es. The authors thank the Editor and the anonymous referees for helpful comments and suggestions. The usual caveat applies.

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  • Adolfo Maza

    1. Department of Economics, University of Cantabria, Santander, Spain
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ABSTRACT

Previous studies focusing on the intra-distribution dynamics analysis have usually computed, in a Markov chain framework, discrete-time transition matrices. Such an approach, however, can involve some limitations, especially when using stock variables. In order to illustrate the importance of the time-scale issue when estimating transition matrices, this paper applies both discrete and continuous-time approaches to a set of cross-national European data on per capita wealth for the period 2000–10. The results reveal, on the one hand, that the continuous-time estimation provides a most accurate estimation of transition probabilities and, on the other, that the differences between both approaches are especially remarkable in the long-term equilibrium distribution.

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