On the stability of the CRRA utility under high degrees of uncertainty
Economic growth models under uncertainty and rational agents with CRRA utility have been shown to provide quite fragile explanations of consumers.choice as equlib- rium comsumption paths (expected utility) are drastically dependant on distributional assumptions. We show that assuming a SNP distribution for random consumption provides stability to general equilibrium models as expected utility exists for any value of the marginal rate of substitution over time.
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- Hashem Pesaran & Davide Pettenuzzo & Allan Timmermann, 2006.
"Learning, Structural Instability and Present Value Calculations,"
IEPR Working Papers
06.42, Institute of Economic Policy Research (IEPR).
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