Consumption, Liquidity Constraints and Asset Accumulation in the Presence of Random Income Fluctuations
AbstractRecent empirical research, Flavin (1981), Hagashi (1982), has rejected the certainty-equivalent formulation of permanent income hypothesis, Hall (1978). These findings are often attributed to households' inability to borrow completely against expected future labor income. This paper is a theoretical investigation of optimal consumption behavior under risk aversion, random income fluctuations, and borrowing restrictions. Our principle objective is to establish the existence and to investigate the properties of the stationary probability distribution which characterizes the asymptotic behavior of consumption under these conditions.
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 28 (1987)
Issue (Month): 2 (June)
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Other versions of this item:
- Richard H. Clarida, 1984. "Consumption, Liquidity Constraints and Asset Accumulation in the Presence of Random Income Fluctuations," Cowles Foundation Discussion Papers 705R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1985.
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