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

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Author Info

  • 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.

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Bibliographic Info

Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 559.

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Length: 3 pages
Date of creation: 2012
Date of revision:
Publication status: Published in Economics Letters 117 (2012) 99┬ĘC101
Handle: RePEc:cuf:wpaper:559

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Web page: http://cema.cufe.edu.cn/
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Keywords: Consumption function; Concavity; Risk tolerance;

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  1. Stephen Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers 24-85, Wharton School Rodney L. White Center for Financial Research.
  2. Christopher D. Carroll & Miles S. Kimball, 1995. "On the Concavity of the Consumption Function," Macroeconomics 9503003, EconWPA.
  3. 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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