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Aggregate dividends and consumption smoothing

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  • Huang-Meier, Winifred
  • Freeman, Mark C.

Abstract

We show that net equity payouts from the corporate sector play a crucial role in helping individuals manage their consumption path across the business cycle. In particular, we show that, as investors' desire to smooth consumption increases, optimal aggregate dividends become both more volatile and more counter-cyclical to help counterbalance pro-cyclical labor income. These findings are robust to whether or not agency conflicts exist in the economy.

Suggested Citation

  • Huang-Meier, Winifred & Freeman, Mark C., 2015. "Aggregate dividends and consumption smoothing," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 324-335.
  • Handle: RePEc:eee:finana:v:42:y:2015:i:c:p:324-335
    DOI: 10.1016/j.irfa.2015.08.008
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    More about this item

    Keywords

    Aggregate dividend policy; Consumption smoothing; Habit formation; Dynamic stochastic general equilibrium models;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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