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Consumption Patterns over Pay Periods

  • Kelly, Clare

    (University College Dublin)

  • Gauthier Lanot

    (Keele University)

This paper establishes a theoretical framework to characterise the optimal behaviour of individuals who receive income periodically but make consumption decisions at frequent points during that period, when there is uncertainty with respect to prices and imperfect credit markets. We simulate the numerical solution to this model and find that optimal consumption is u-shaped over the pay period. We apply the model to weekly expenditure data from the FES to estimate the coefficient of relative risk aversion (preliminary point estimates are around 6) and the extent of measurement error in the data (which accounts for approximately 50% of the variance in the data).

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Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 112.

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Date of creation: 29 Aug 2002
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Handle: RePEc:ecj:ac2002:112
Contact details of provider: Postal: Office of the Secretary-General, School of Economics and Finance, University of St. Andrews, St. Andrews, Fife, KY16 9AL, UK
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Web page: http://www.res.org.uk/society/annualconf.asp
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