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Analytical Results For A Model Of Periodic Consumption

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Author Info
Kelly, Clare (Department of Economics, University of Warwick)
Lanot, Gauthier (Department of Economics, Keele University.)

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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/publications/twerp673a.pdf
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Publisher 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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Related research
Keywords: Analytical consumption function ; liquidity constraints ; uncertainty;

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Find related papers by JEL classification:
D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

References listed on IDEAS
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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. [Downloadable!] (restricted)
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  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. [Downloadable!] (restricted)
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  3. 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. [Downloadable!] (restricted)
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  4. Clare Kelly & Gauthier Lanot, 2002. "Consumption Patterns over Pay Periods," Microeconomics 0211013, EconWPA. [Downloadable!]
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  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. [Downloadable!]
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  6. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-48, September. [Downloadable!] (restricted)
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  7. Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October. [Downloadable!] (restricted)
  8. Mason, Robin & Wright, Stephen, 2001. "The effects of uncertainty on optimal consumption," Journal of Economic Dynamics and Control, Elsevier, vol. 25(1-2), pages 185-212, January. [Downloadable!] (restricted)
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  9. Chambers, Marcus J & Bailey, Roy E, 1996. "A Theory of Commodity Price Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 924-57, October. [Downloadable!] (restricted)
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