Optimal savings distortions with recursive preferences
AbstractThis paper derives an intertemporal optimality condition for economies with private information, focusing on a class of recursive preferences. By comparing it to the situation where agents can freely save in a risk-free asset market, we derive the optimal savings distortions necessary for constrained optimality. Our recursive preferences are homogeneous and satisfy a balanced-growth condition, while allowing us to separate the role of risk aversion and intertemporal elasticity of substitution. We perform some quantitative exercises that disentangle the respective roles played by these two parameters in optimal distortions and the implied welfare gains.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Monetary Economics.
Volume (Year): 55 (2008)
Issue (Month): 1 (January)
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Web page: http://www.elsevier.com/locate/inca/505566
Other versions of this item:
- Emmanuel Farhi & Iván Werning, 2008. "Optimal Savings Distortions with Recursive Preferences," NBER Working Papers 13720, National Bureau of Economic Research, Inc.
- H0 - Public Economics - - General
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