IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Adaptive Consumption Behavior

  • Peter Howitt
  • Ömer Özak

This paper proposes and studies a theory of adaptive consumption behavior under income uncertainty and liquidity constraints. We assume that consumption is governed by a linear function of wealth, whose coefficients are revised each period by a procedure, which, although sophisticated, places few informational or computational demands on the consumer. We show that under a variety of settings, our procedure converges quickly to a set of coefficients with low welfare cost relative to a fully optimal nonlinear consumption function.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w15427.pdf
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15427.

as
in new window

Length:
Date of creation: Oct 2009
Date of revision:
Publication status: published as Howitt, Peter & Özak, Ömer, 2014. "Adaptive consumption behavior," Journal of Economic Dynamics and Control, Elsevier, vol. 39(C), pages 37-61.
Handle: RePEc:nbr:nberwo:15427
Note: EFG
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. John H. Cochrane, 1988. "The Sensitivity of Tests of the Intertemporal Allocation of Consumption to Near-Rational Alternatives," NBER Working Papers 2730, National Bureau of Economic Research, Inc.
  2. Christopher D. Carroll & Miles S. Kimball, 1995. "On the Concavity of the Consumption Function," Macroeconomics 9503003, EconWPA.
  3. Harald Uhlig & Martin Lettau, 1999. "Rules of Thumb versus Dynamic Programming," American Economic Review, American Economic Association, vol. 89(1), pages 148-174, March.
  4. Todd W Allen & Christopher D Carroll, 2001. "Individual Learning About Consumption," Economics Working Paper Archive 444, The Johns Hopkins University,Department of Economics.
  5. Christopher D. Carroll, 2001. "A Theory of the Consumption Function, With and Without Liquidity Constraints (Expanded Version)," NBER Working Papers 8387, National Bureau of Economic Research, Inc.
  6. Quamrul Ashraf & Boris Gershman & Peter Howitt, 2013. "How Inflation Affects Macroeconomic Performance: An Agent-Based Computational Investigation," Working Papers 2013-10, American University, Department of Economics.
  7. Quamrul Ashraf & Boris Gershman & Peter Howitt, 2011. "Banks, Market Organization, and Macroeconomic Performance: An Agent-Based Computational Analysis," NBER Working Papers 17102, National Bureau of Economic Research, Inc.
  8. Howitt, Peter, 1992. "Interest Rate Control and Nonconvergence to Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 776-800, August.
  9. W. Brian Arthur, 1994. "Inductive Reasoning, Bounded Rationality and the Bar Problem," Working Papers 94-03-014, Santa Fe Institute.
  10. Arthur, W Brian, 1994. "Inductive Reasoning and Bounded Rationality," American Economic Review, American Economic Association, vol. 84(2), pages 406-11, May.
  11. Eliasson, Gunnar, 1977. "Competition and Market Processes in a Simulation Model of the Swedish Economy," American Economic Review, American Economic Association, vol. 67(1), pages 277-81, February.
  12. Blake LeBaron & Leigh Tesfatsion, 2008. "Modeling Macroeconomies as Open-Ended Dynamic Systems of Interacting Agents," American Economic Review, American Economic Association, vol. 98(2), pages 246-50, May.
  13. Charlotte Bruun, 2003. "The Economy as an Agent-based Whole--Simulating Schumpeterian Dynamics," Industry and Innovation, Taylor & Francis Journals, vol. 10(4), pages 475-491.
  14. Carroll, Christopher D., 2011. "Theoretical foundations of buffer stock saving," CFS Working Paper Series 2011/15, Center for Financial Studies (CFS).
  15. James Bruce, 2003. "Learning Algorithms in a Decentralized General Equilibrium Model," Department of Economics Working Papers 2003-02, McMaster University.
  16. Tesfatsion, Leigh, 2006. "Agent-Based Computational Modeling And Macroeconomics," Staff General Research Papers 12402, Iowa State University, Department of Economics.
  17. Cincotti, Silvano & Raberto, Marco & Teglio, Andrea, 2010. "Credit money and macroeconomic instability in the agent-based model and simulator Eurace," Economics Discussion Papers 2010-4, Kiel Institute for the World Economy.
  18. James Feigenbaum, 2008. "Optimal Irrational Behavior," Working Papers 368, University of Pittsburgh, Department of Economics, revised Sep 2008.
  19. Akerlof, George A & Yellen, Janet L, 1985. "Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?," American Economic Review, American Economic Association, vol. 75(4), pages 708-20, September.
  20. Howitt, Peter & Clower, Robert, 2000. "The emergence of economic organization," Journal of Economic Behavior & Organization, Elsevier, vol. 41(1), pages 55-84, January.
  21. Giovanni Dosi & Giorgio Fagiolo & Andrea Roventini, 2006. "An Evolutionary Model of Endogenous Business Cycles," Computational Economics, Society for Computational Economics, vol. 27(1), pages 3-34, February.
  22. Peter Howitt, 2006. "The Microfoundations of the Keynesian Multiplier Process," Journal of Economic Interaction and Coordination, Springer, vol. 1(1), pages 33-44, May.
  23. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, June.
  24. Alexander L. Brown & Zhikang Eric Chua & Colin F. Camerer, 2009. "Learning and Visceral Temptation in Dynamic Saving Experiments-super-," The Quarterly Journal of Economics, MIT Press, vol. 124(1), pages 197-231, February.
  25. Albin, Peter & Foley, Duncan K., 1992. "Decentralized, dispersed exchange without an auctioneer : A simulation study," Journal of Economic Behavior & Organization, Elsevier, vol. 18(1), pages 27-51, June.
  26. Leijonhufvud, Axel, 2006. "Agent-Based Macro," Handbook of Computational Economics, in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 36, pages 1625-1637 Elsevier.
  27. Arifovic, Jasmina, 2000. "Evolutionary Algorithms In Macroeconomic Models," Macroeconomic Dynamics, Cambridge University Press, vol. 4(03), pages 373-414, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:15427. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.