Heterogeneous Impatience in a Continuous-Time Model
In a continuous-time economy with complete markets, we study how the heterogeneity in the individual consumers' risk tolerance and impatience affects the representative consumer's risk tolerance and impatience. We derive some formulas, which indicate that the representative consumer's impatience decrease over time, and whether his risk tolerance increases or decreases over time depends on the sign of some weighted covariance between the individual consumers' cautiousness (derivative of risk tolerance with respect to own consumptions) and impatience. These results are then used to show that the short rate tends to decrease over time and the market price of risk is volatile in some special cases of heterogeneous economies.
|Date of creation:||Mar 2009|
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|Note:||January 18, 2009|
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- Chiaki Hara, 2005.
"Heterogeneous Risk Attitudes in a Continuous-Time Model,"
KIER Working Papers
609, Kyoto University, Institute of Economic Research.
- Chiaki Hara, 2006. "Heterogeneous Risk Attitudes In A Continuous-Time Model," The Japanese Economic Review, Japanese Economic Association, vol. 57(3), pages 377-405.
- Hara, Chiaki, 2008.
"Complete monotonicity of the representative consumer's discount factor,"
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Elsevier, vol. 44(12), pages 1321-1331, December.
- Chiaki Hara, 2007. "Complete Monotonicity of the Representative Consumer's Discount Factor," KIER Working Papers 636, Kyoto University, Institute of Economic Research.
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- Martin Lettau & Sydney C. Ludvigson & Jessica A. Wachter, 2008.
"The Declining Equity Premium: What Role Does Macroeconomic Risk Play?,"
Review of Financial Studies,
Society for Financial Studies, vol. 21(4), pages 1653-1687, July.
- Martin Lettau & Sydney Ludvigson & Jessica Wachter, 2005. "The declining equity premium: what role does macroeconomic risk play?," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
- Martin Lettau & Sydney C. Ludvigson, 2004. "The Declining Equity Premium: What Role Does Macroeconomic Risk Play?," 2004 Meeting Papers 644, Society for Economic Dynamics.
- Martin Lettau & Sydney C. Ludvigson & Jessica A. Wachter, 2004. "The Declining Equity Premium: What Role Does Macroeconomic Risk Play?," NBER Working Papers 10270, National Bureau of Economic Research, Inc.
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- Ravi Jagannathan & Ellen R. McGrattan & Anna Scherbina, 2001.
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NBER Working Papers
8172, National Bureau of Economic Research, Inc.
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