Chiaki Hara () (Institute of Economic Research, Kyoto University)
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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Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number
665.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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.
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