Optimal Intertemporal Consumption Under Uncertainty
We analyze the optimal consumption program of an infinitely-lived consumer who maximizes the discounted sum of utilities subject to a sequence of budget constraints where both the interest rate and his income are stochastic. We show that if the income and interest rate processes are sufficiently stochastic and the long run average rate of interest is greater than or equal to the discount rate, then consumption eventually grows without bound with probability one. We also establish conditions under which the borrowing constraints must be binding and examine how the income process affects the optimal consumption program. (Copyright: Elsevier)
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Volume (Year): 3 (2000)
Issue (Month): 3 (July)
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- Truman Bewley, 1979.
"The Optimum Quantity of Money,"
383, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Bewley, Truman F., 1980. "The permanent income hypothesis and long-run economic stability," Journal of Economic Theory, Elsevier, vol. 22(3), pages 377-394, June.
- Schechtman, Jack, 1976. "An income fluctuation problem," Journal of Economic Theory, Elsevier, vol. 12(2), pages 218-241, April.
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- Yaari, Menahem E., 1976. "A law of large numbers in the theory of consumer's choice under uncertainty," Journal of Economic Theory, Elsevier, vol. 12(2), pages 202-217, April.
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