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An approximate consumption function

  • Padula, Mario

This paper proposes an approximation to the consumption function. The approximation is based on the analytic properties of the consumption function in the buffer-stock model. In such model, the consumption function is increasing and concave and its derivative is bounded from above and below. We compare the approximation with the consumption function obtained using the endogenous grid-points algorithm and show that using the former or the latter for estimating the Euler equation leads to very similar results.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 34 (2010)
Issue (Month): 3 (March)
Pages: 404-416

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Handle: RePEc:eee:dyncon:v:34:y:2010:i:3:p:404-416
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  13. Feigenbaum, James, 2005. "Second-, third-, and higher-order consumption functions: a precautionary tale," Journal of Economic Dynamics and Control, Elsevier, vol. 29(8), pages 1385-1425, August.
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