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On the concavity of the consumption function with the time varying discount rate

Author

Listed:
  • Liutang Gong

    (Guanghua School of Management, Peking University)

  • Ruquan Zhong

    (Institute of Applied Mathematics, AMSS, CAS)

  • Heng-fu Zou

    (Institute for Advanced Study, Wuhan University
    CEMA, Central University of Finance and Economics)

Abstract

In this paper, we consider a finite-horizon model with the time-additive utility and the time varying discount rate. With the assumption of the concavity of absolute risk tolerance, the concavity of the consumption function has been proved. This result significantly broadens the conclusion of Carroll and Kimball (1996) for the case of the HARA utility function.

Suggested Citation

  • Liutang Gong & Ruquan Zhong & Heng-fu Zou, 2012. "On the concavity of the consumption function with the time varying discount rate," CEMA Working Papers 559, China Economics and Management Academy, Central University of Finance and Economics.
    • Handle: RePEc:cuf:wpaper:559
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    References listed on IDEAS

    as
    1. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-346, April.
    2. Carroll, Christopher D & Kimball, Miles S, 1996. "On the Concavity of the Consumption Function," Econometrica, Econometric Society, vol. 64(4), pages 981-992, July.
    3. Vasilev, Aleksandar & Maksumov, Rashid, 2010. "Critical analysis of Chapter 23 of Keynes’s Notes on Mercantilism in The General Theory of Employment, Interest and Money (1936)," EconStor Research Reports 155318, ZBW - Leibniz Information Centre for Economics.
    4. Shin-Ichi Nishiyama & Ryo Kato, 2011. "On the Concavity of the Consumption Function with a Quadratic Utility under Liquidity Constraints," TERG Discussion Papers 274, Graduate School of Economics and Management, Tohoku University.
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    Cited by:

    1. Jeanne Commault, 2022. "How Do Persistent Earnings Affect the Response of Consumption to Transitory Shocks?," Working Papers hal-03870685, HAL.
    2. Toda, Alexis Akira, 2021. "Necessity of hyperbolic absolute risk aversion for the concavity of consumption functions," Journal of Mathematical Economics, Elsevier, vol. 94(C).
    3. Bah, Ibrahim Abubakarr, 2022. "Assessing Sierra Leone’s Consumption Function: A Cointegration and an Error Correction Model Approach," EconStor Preprints 266912, ZBW - Leibniz Information Centre for Economics.
    4. Liu, Haoyu & Li, Lun, 2023. "On the concavity of consumption function under habit formation," Journal of Mathematical Economics, Elsevier, vol. 106(C).
    5. Chen Shou & Xiang Shengpeng & He Hongbo, 2019. "Do Time Preferences Matter in Intertemporal Consumption and Portfolio Decisions?," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(2), pages 1-13, June.

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    More about this item

    Keywords

    Consumption function; Concavity; Risk tolerance;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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