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Heterogeneous Impatience in a Continuous-Time Model

  • Hara, Chiaki

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.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/17298/1/pie_dp425.pdf
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Paper provided by Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University in its series PIE/CIS Discussion Paper with number 425.

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Length: 21 p.
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:hit:piecis:425
Note: January 18, 2009
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  1. Martin Lettau & Sydney C. Ludvigson, 2004. "The Declining Equity Premium: What Role Does Macroeconomic Risk Play?," 2004 Meeting Papers 644, Society for Economic Dynamics.
  2. Chiaki Hara, 2005. "Heterogeneous Risk Attitudes in a Continuous-Time Model," KIER Working Papers 609, Kyoto University, Institute of Economic Research.
  3. Hara, Chiaki, 2008. "Complete Monotonicity of the Representative Consumer's Discount Factor," PIE/CIS Discussion Paper 367, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  4. Ravi Jagannathan & Ellen R. McGrattan & Anna Scherbina., 2000. "The declining U.S. equity premium," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-19.
  5. Christian Gollier & Richard Zeckhauser, 2005. "Aggregation of Heterogeneous Time Preferences," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 878-896, August.
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