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The Buffer-Stock Consumption Model with Endogenous Income Shifts

Author

Listed:
  • Malchow-Møller Nikolaj

    (Centre for Economic and Business Research (CEBR) and University of Southern Denmark)

  • Thorsen Bo Jellesmark

    (Royal Veterinary and Agricultural University and Centre for Economic and Business Research (CEBR))

Abstract

Credit-constrained households must use savings both to smooth consumption and to finance productive investments. This non-separability between consumption and production decisions is ignored in the standard intertemporal buffer-stock consumption model where income growth is exogenous. This paper develops an intertemporal model of household consumption and investment in the presence of credit constraints and income uncertainty. Investment options are modelled as irreversible, indivisible, and non-stationary, allowing for endogenous income growth. The resulting behaviour is markedly different from that of the standard buffer-stock model.

Suggested Citation

  • Malchow-Møller Nikolaj & Thorsen Bo Jellesmark, 2005. "The Buffer-Stock Consumption Model with Endogenous Income Shifts," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-27, June.
    • Handle: RePEc:bpj:bejmac:v:contributions.5:y:2005:i:1:n:6
    DOI: 10.2202/1534-6005.1108
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    Cited by:

    1. Riyong Kim Bakkegaard & Martin Reinhardt Nielsen & Bo Jellesmark Thorsen, 2017. "Household determinants of bushmeat and eru (Gnetum africanum) harvesting for cash in the Democratic Republic of Congo," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 19(4), pages 1425-1443, August.

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