Analytical Results for a Model of Periodic Consumption
This paper presents the partial analytical solution to a model of periodic consumption that incorporates imperfect capital markets and uncertainty. Our model assumes that consumption decisions occur more frequently than income receipts. We show that the week-specific consumption functions can be ordered. At low levels of wealth these functions exhibit a ‘‘u-shaped’’ pattern between income receipts. We show analytically that changes in the level of the borrowing constraint affect only the level of consumption function and not the MPC, whilst mean-preserving changes in uncertainty affect both.
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