Optimal consumption and savings with stochastic income and recursive utility

• 成果类型: Article
• 署名作者: Wang, Chong; Wang, Neng; Yang, Jinqiang
• 署名单位: United States Department of Defense; United States Navy; Naval Postgraduate School; Columbia University; National Bureau of Economic Research
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2016.04.002
• 发表日期: 2016
• 页码: 292-331
• 关键词: buffer stock; precautionary savings; incomplete markets; borrowing constraints; permanent income; non-expected utility; Marginal value of liquidity

摘要

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. (C) 2016 Elsevier Inc. All rights reserved.