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Analytical Results For A Model Of Periodic Consumption

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  • Kelly, Clare

    (Department of Economics, University of Warwick)

  • Lanot, Gauthier

    (Department of Economics, Keele University.)

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 receipt. We show that the week specific consumption functions can be ordered. At low levels of wealth these functions exhibit a “ushaped” 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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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp673a.pdf
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Bibliographic Info

Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 673.

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Length: 45 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:wrk:warwec:673

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Keywords: Analytical consumption function ; liquidity constraints ; uncertainty;

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  1. Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(5), pages 896-923, October.
  2. Deaton, A., 1989. "Saving And Liquidity Constraints," Papers, Princeton, Woodrow Wilson School - Public and International Affairs 153, Princeton, Woodrow Wilson School - Public and International Affairs.
  3. Christopher D. Carroll & Miles S. Kimball, 1995. "On the Concavity of the Consumption Function," Macroeconomics, EconWPA 9503003, EconWPA.
  4. Clare Kelly & Gauthier Lanot, 2002. "Consumption Patterns over Pay Periods," Keele Economics Research Papers, Centre for Economic Research, Keele University KERP 2002/14, Centre for Economic Research, Keele University.
  5. Rabault, Guillaume, 2002. "When do borrowing constraints bind? Some new results on the income fluctuation problem," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 26(2), pages 217-245, February.
  6. Zeldes, Stephen P, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(2), pages 275-98, May.
  7. Christopher D. Carroll, 2001. "A Theory of the Consumption Function, with and without Liquidity Constraints," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 15(3), pages 23-45, Summer.
  8. Roy Bailey and Marcus Chambers, . "A Theory of Commodity Price Fluctuations," Economics Discussion Papers, University of Essex, Department of Economics 432, University of Essex, Department of Economics.
  9. Mason, Robin & Wright, Stephen, 2001. "The effects of uncertainty on optimal consumption," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 25(1-2), pages 185-212, January.
  10. Christopher D. Carroll & Miles S. Kimball, 2001. "Liquidity Constraints and Precautionary Saving," NBER Working Papers 8496, National Bureau of Economic Research, Inc.
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