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Heterogeneous Impatience in a Continuous-Time Model

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  • Hara, Chiaki

Abstract

In a continuous-time economy with complete markets, we study how the heterogeneity in the individual consumers' risk tolerance and impatience affects the representative consumer's risk tolerance and impatience. We derive some formulas, which indicate that the representative consumer's impatience decrease over time, and whether his risk tolerance increases or decreases over time depends on the sign of some weighted covariance between the individual consumers' cautiousness (derivative of risk tolerance with respect to own consumptions) and impatience. These results are then used to show that the short rate tends to decrease over time and the market price of risk is volatile in some special cases of heterogeneous economies.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/17298/1/pie_dp425.pdf
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Bibliographic Info

Paper provided by Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University in its series PIE/CIS Discussion Paper with number 425.

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Length: 21 p.
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:hit:piecis:425

Note: January 18, 2009
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Keywords: Representative consumer; risk tolerance; impatience; state-price deflator; shortrate process; market price of risk;

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  1. Hara, Chiaki, 2008. "Complete Monotonicity of the Representative Consumer's Discount Factor," PIE/CIS Discussion Paper 367, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  2. Lettau, Martin & Ludvigson, Sydney & Wachter, Jessica, 2006. "The Declining Equity Premium: What Role Does Macroeconomic Risk Play?," CEPR Discussion Papers 5519, C.E.P.R. Discussion Papers.
  3. Chiaki Hara, 2006. "Heterogeneous Risk Attitudes In A Continuous-Time Model," The Japanese Economic Review, Japanese Economic Association, vol. 57(3), pages 377-405.
  4. Ravi Jagannathan & Ellen R. McGrattan & Anna Scherbina., 2000. "The declining U.S. equity premium," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-19.
  5. Christian Gollier & Richard Zeckhauser, 2005. "Aggregation of Heterogeneous Time Preferences," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 878-896, August.
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Cited by:
  1. Hara, Chiaki, 2008. "Complete monotonicity of the representative consumer's discount factor," Journal of Mathematical Economics, Elsevier, vol. 44(12), pages 1321-1331, December.

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