Download or read book Optimal Consumption and Savings with Stochastic Income and Recursive Utility written by Chong Wang and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a tractable incomplete-markets model with an earnings process Y subject to permanent shocks and borrowing constraints. Financial frictions cause the marginal (certainty equivalent) value of wealth W to be greater than unity and decrease with liquidity w = W/Y . Additionally, financial frictions cause consumption to decrease with this endogenously determined marginal value of liquidity. Risk aversion and the elasticity of inter-temporal substitution play very different roles on consumption and the dispersion of w. Permanent earnings shocks, especially large discrete stochastic jumps, make consumption smoothing quantitatively difficult to achieve. Borrowing constraints and permanent discrete jump shocks can generate empirically plausible values for marginal propensities to consume in the range of 0.2 to 0.6.
Download or read book Optimal Consumption and Savings with Stochastic Income written by Chong Wang and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop an analytically tractable consumption-savings model for a liquidity-constrained agent who faces both permanent and transitory income shocks. We find that risk aversion and intertemporal substitution have very different effects on both consumption and the steady-state savings target. Moderate changes in risk aversion have large effects on consumption and buffer-stock savings. With permanent shocks, it takes many years to reach the steady-state savings target. We also find that large discrete income shocks (jumps) occurring at low frequencies can be very costly. Unlike conventional wisdom, transitory shocks can generate very large precautionary savings demand, especially for low transitory income states.
Download or read book Optimal Consumption with Stochastic Income written by Stephen Paul Zeldes and published by . This book was released on 1984 with total page 310 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Optimal Consumption with Stochastic Income written by Stephen P. Zeldes and published by . This book was released on 1986 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Consumption Decisions with Stochastic Wage Income written by Fuchun Jin and published by . This book was released on 1998 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, I use an approximate solution to model the optimal consumption when the representative consumer faces labor income uncertainty. This approximate consumption function is based on Zeldes' (1989) numerical solution to the optimal consumption problem with CRRA utility and stochastic labor income. Unlike the certainty equivalence solution, this model assumes that the consumer discounts expected future labor income at a rate higher than the real interest rate. It therefore takes into consideration the precautionary savings of the consumer. The first order implications of the approximate consumption function, with and without the liquidity constrained consumers, are tested using quarterly UDS data. The evidence lends support to the claims of the approximate consumption function, particularly when liquidity constrained consumers are included. The empirical results of this paper imply that current consumption should be Granger caused by variables in the lagged information set. Meanwhile, consumption should be smoother than labor income, even when the latter follows an integrated process. Both implications have been documented in the literature. Based on this evidence, I conclude that the approximate model is a promising way of getting around the difficulties involved in obtaining a closed form solution when utility is of the general decreasing absolute risk aversion type.
Download or read book Optimal Consumption with a Stochastic Income Stream written by Bruce L. Miller and published by . This book was released on 1972 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper investigates the optimal consumption strategies of an individual facing a stochastic labor and deterministic capital income stream over an infinite horizon. The main result of the paper is a theorem showing that the optimal amount to consume in the stochastic income case is always less than the optimal amount to consume in the deterministic case where the stochastic income received each period is replaced by its mean. (Author).
Download or read book Notes on Consumption Theory written by Giuseppe Travaglini and published by Springer Nature. This book was released on with total page 157 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Optimal Savings with Stochastic Income and Habit Formation written by Jody Overland and published by . This book was released on 1997 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Two Essays on Stochastic Income Theory written by C. Y. Cyrus Chu and published by . This book was released on 1985 with total page 234 pages. Available in PDF, EPUB and Kindle. Book excerpt: future generations is a factor that should be considered in an optimal insurance tax structure.
Download or read book Dissecting Saving Dynamics written by Mr.Christopher Carroll and published by International Monetary Fund. This book was released on 2012-09-01 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: We argue that the U.S. personal saving rate’s long stability (from the 1960s through the early 1980s), subsequent steady decline (1980s - 2007), and recent substantial increase (2008 - 2011) can all be interpreted using a parsimonious ‘buffer stock’ model of optimal consumption in the presence of labor income uncertainty and credit constraints. Saving in the model is affected by the gap between ‘target’ and actual wealth, with the target wealth determined by credit conditions and uncertainty. An estimated structural version of the model suggests that increased credit availability accounts for most of the saving rate’s long-term decline, while fluctuations in net wealth and uncertainty capture the bulk of the business-cycle variation.
Download or read book Optimal Consumption with an Exponential Utility Function written by Alexander Charles Ratnofsky and published by . This book was released on 1973 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper develops a model for the determination of an individual's optimal consumption strategy when he is faced with a stochastic income stream. With the use of an exponential utility function an upper bound on optimal consumption is found. This upper bound is found to increase as future income becomes more certain. The optimal amount to consume when all future income is deterministic is also found. Finally, examples are given to illustrate the results obtained and to highlight the importance of the selection of the various parameters. (Author).
Download or read book Optimal Consumption with Stochastic Nonstationary Income and Preferences Finite Horizon and Two Interest Rates written by Refael Hassin and published by . This book was released on 1976 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Inter temporal Optimal Consumption saving Allocation Under Uncertainty written by Moses Osaruyi Odaro and published by . This book was released on 1939 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Optimal Consumption and Investment with Labor Income Uncertainty and Endogenous Retirement written by Matthew M. Woolley and published by . This book was released on 2004 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper characterizes optimal consumption and investment policies for investors with asset return predictability, stochastic labor income and endogenously-determined retirement. We find that the ratio of total wealth-to-labor income (normalized wealth) is the primary determinant of the retirement decision and that at all ages, there exists a critical normalized wealth such that above this wealth, investors retire. We further consider the implications of endogenous retirement on portfolio choice. It is well known that human capital plays a large role in the determination of optimal equity proportion in financial portfolios. By endogenizing retirement, human capital becomes dependent on savings and investment decisions, which in turn depend on human capital. When compared to investors who exogenously retire at age 65, we find that low-wealth investors with the option to time retirement invest more aggressively while investors with slightly greater normalized wealth invest less aggressively prior to retirement. Investors with high normalized wealth behave almost the same as in the exogenous retirement case. This result contrasts the results in two recent papers and is due to the existence of stochastic labor income. Finally, we consider the impact of asset return/labor income correlation and find that equity holdings are nearly completely crowded-out by increased labor income (background) risk.
Download or read book A Stochastic Optimal Control Formulation of the Consumption debt Decision written by and published by Bib. Orton IICA / CATIE. This book was released on with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Economics of Saving written by Mervyn A. King and published by . This book was released on 1983 with total page 122 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyses recent contributions to the theory of household saving and examines empirical evidence on the subject. It focuses on (a) the derivation and estimation of first-order conditions for a consumer's optimum lfe-cycle consumption plan, (b) the conditions under which such conditions may be used to derive an aggregate consumption function, (c) the relationship between constraints in labor and cyclical markets and the notion of a "representive consumer" in macroeconomic models, and (d) the extent to which existing empirical evidence lends support to a life-cycle model of consumer behavior. Further empirical tests are proposed
Download or read book Consumption Response to Expected Future Income written by Laurie Pounder and published by . This book was released on 2009 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: consuption "This paper shows empirical evidence in favor of forward-looking household consumption--that consumption today depends directly on household-specific ex-ante expectations of future income. This analysis is unique in using a direct consumption measure combined with an ex-ante household-specific measure of expected future income, constructed from detailed survey and administrative data on Social Security, pensions, and retirement plans. Households with high expected future income spend more today than households that have lower future income but identical current income and net worth. Omitting household-specific future income can cause mis-estimation of key consumption questions. Furthermore, when all three resources for consumption (current income, net worth, and future income) are accounted for, the average propensity to spend out of current income is similar to predictions of optimal consumption under uncertainty in a dynamic stochastic model, although the propensities to spend out of accumulated net worth and expected future income are notably lower in the data than the optimal model. Finally, these data also provide evidence on the effect of risk on consumption while controlling for all three resources. Households with high measured risk aversion consume less out of future income. All households, on average, consume more out of the more predictable sources of future income, such as future Social Security benefits"--Federal Reserve Board web site.
