On Consumption, Investment and Risk
AbstractThe Mexican episode of 1992-1994 was characterized by a steep rise in consumption accompanied by a sharp fall in investment. This paper provides an explanation of the negative response of investment to political risk, as occurred in Mexico between 1992 and 1994. It is assumed that, inside an adjustable band, the expected rate of depreciation is driven by a mixed diffusion-jump process and the expected real rate of return on an international bond is governed by a diffusion process, both processes being correlated. This paper analyzes a small open stochastic economy. Two cases are considered: i) a cash-in-advance, Ramsey-type economy, and ii) a Sidrauski-type economy.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by in its journal Economia Mexicana NUEVA EPOCA.
Volume (Year): IX (2000)
Issue (Month): 2 (July-December)
Contact details of provider:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Merton, Robert C., 1975.
"Option pricing when underlying stock returns are discontinuous,"
Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management
787-75., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Merton, Robert C., 1976. "Option pricing when underlying stock returns are discontinuous," Journal of Financial Economics, Elsevier, Elsevier, vol. 3(1-2), pages 125-144.
- Alessandro Penati & George Pennacchi, .
"Optimal Portfolio Choice and the Collapse of a Fixed-Exchange Rate Regime,"
Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research
25-86, Wharton School Rodney L. White Center for Financial Research.
- Penati, Alessandro & Pennacchi, George, 1989. "Optimal portfolio choice and the collapse of a fixed-exchange rate regime," Journal of International Economics, Elsevier, Elsevier, vol. 27(1-2), pages 1-24, August.
- Merton, Robert C., 1971.
"Optimum consumption and portfolio rules in a continuous-time model,"
Journal of Economic Theory, Elsevier,
Elsevier, vol. 3(4), pages 373-413, December.
- R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 58, Massachusetts Institute of Technology (MIT), Department of Economics.
- Svensson, Lars E. O., 1992.
"The foreign exchange risk premium in a target zone with devaluation risk,"
Journal of International Economics, Elsevier,
Elsevier, vol. 33(1-2), pages 21-40, August.
- Svensson, Lars E O, 1991. "The Foreign Exchange Risk Premium in a Target Zone with Devaluation Risk," CEPR Discussion Papers, C.E.P.R. Discussion Papers 494, C.E.P.R. Discussion Papers.
- Svensson, L.E., 1990. "The Foreign Exchange Risk Premium in a Target Zone with Devaluation Risk," Papers, Stockholm - International Economic Studies 475, Stockholm - International Economic Studies.
- Lars E.O. Svensson, 1990. "The Foreign Exchange Risk Premium in a Target Zone with Devaluation Risk," NBER Working Papers 3466, National Bureau of Economic Research, Inc.
- Jarrow, Robert A & Rosenfeld, Eric R, 1984. "Jump Risks and the Intertemporal Capital Asset Pricing Model," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 57(3), pages 337-51, July.
- Venegas-Martínez, Francisco & Rodríguez-Nava, Abigail & Palafox-Roca, Alfredo Omar, 2014.
"Impacto de una reforma fiscal sobre el bienestar económico en un ambiente de incertidumbre
[Impact of Tax Reform on Economic Welfare in an Uncertainty Environment]," MPRA Paper 57108, University Library of Munich, Germany.
- Francisco Venegas-Martínez, 2005. "Temporary Stabilization and the Real Option of Waiting when Consumption can be Delayed: an Extreme Value Approach," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c010_043, DEGIT, Dynamics, Economic Growth, and International Trade.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ricardo Tiscareño).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.