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Analytical Results for a Model of Periodic Consumption

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  • Clare Kelly

    () (University of Warwick, Department of Economics)

  • Gauthier Lanot

    () (Keele University, Department of Economics)

Abstract

This paper presents the partial analytical solution to a model of periodic consumption that incorporates imperfect capital markets and uncertainty. Our model assumes that consumption decisions occur more frequently than income receipts. We show that the week-specific consumption functions can be ordered. At low levels of wealth these functions exhibit a ‘‘u-shaped’’ pattern between income receipts. We show analytically that changes in the level of the borrowing constraint affect only the level of consumption function and not the MPC, whilst mean-preserving changes in uncertainty affect both.

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Bibliographic Info

Paper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number KERP 2003/01.

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Length: 39 pages
Date of creation: Apr 2003
Date of revision:
Handle: RePEc:kee:kerpuk:2003/01

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Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom
Phone: +44 (0)1782 584581
Fax: +44 (0)1782 717577
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Web page: http://www.keele.ac.uk/depts/ec/cer/
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Postal: Centre for Economic Research, Research Institute for Public Policy and Management, Keele University, Staffordshire ST5 5BG - United Kingdom
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Web: http://www.keele.ac.uk/depts/ec/cer/pubs_kerps.htm

Related research

Keywords: Analytical consumption function; liquidity constraints; uncertainty.;

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References

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  1. Carroll, Christopher D & Kimball, Miles S, 1996. "On the Concavity of the Consumption Function," Econometrica, Econometric Society, vol. 64(4), pages 981-92, July.
  2. Christopher D. Carroll, 2001. "A Theory of the Consumption Function, with and without Liquidity Constraints," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 23-45, Summer.
  3. Kelly, Clare & Gauthier Lanot, 2002. "Consumption Patterns Over Pay Periods," The Warwick Economics Research Paper Series (TWERPS) 656, University of Warwick, Department of Economics.
  4. Zeldes, Stephen P, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 275-98, May.
  5. Christopher D Carroll & Miles S Kimball, 2001. "Liquidity Constraints and Precautionary Saving," Economics Working Paper Archive 455, The Johns Hopkins University,Department of Economics.
  6. Mason, R. & Wright, S., 1999. "The effects of uncertainty on optimal consumption," Discussion Paper Series In Economics And Econometrics 9907, Economics Division, School of Social Sciences, University of Southampton.
  7. Deaton, A. & Laroque, G., 1996. "Competitive storage and commodity price dynamics," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
  8. Angus Deaton, 1989. "Saving and Liquidity Constraints," NBER Working Papers 3196, National Bureau of Economic Research, Inc.
  9. Roy Bailey and Marcus Chambers, . "A Theory of Commodity Price Fluctuations," Economics Discussion Papers 432, University of Essex, Department of Economics.
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