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Analytical Results For A Model Of Periodic Consumption

  • Kelly, Clare

    (Department of Economics, University of Warwick)

  • Lanot, Gauthier

    (Department of Economics, Keele University.)

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 receipt. We show that the week specific consumption functions can be ordered. At low levels of wealth these functions exhibit a “ushaped” 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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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp673a.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 673.

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Length: 45 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:wrk:warwec:673
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Web page: http://www2.warwick.ac.uk/fac/soc/economics/

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  1. Rabault, Guillaume, 2002. "When do borrowing constraints bind? Some new results on the income fluctuation problem," Journal of Economic Dynamics and Control, Elsevier, vol. 26(2), pages 217-245, February.
  2. Christopher D Carroll & Miles S Kimball, 2001. "Liquidity Constraints and Precautionary Saving," Economics Working Paper Archive 455, The Johns Hopkins University,Department of Economics.
  3. 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.
  4. Christopher D. Carroll & Miles S. Kimball, 1995. "On the Concavity of the Consumption Function," Macroeconomics 9503003, EconWPA.
  5. Kelly, Clare & Gauthier Lanot, 2002. "Consumption Patterns over Pay Periods," Royal Economic Society Annual Conference 2002 112, Royal Economic Society.
  6. Roy Bailey and Marcus Chambers, . "A Theory of Commodity Price Fluctuations," Economics Discussion Papers 432, University of Essex, Department of Economics.
  7. Zeldes, Stephen P, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 275-98, May.
  8. Mason, Robin & Wright, Stephen, 2001. "The effects of uncertainty on optimal consumption," Journal of Economic Dynamics and Control, Elsevier, vol. 25(1-2), pages 185-212, January.
  9. Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October.
  10. Angus Deaton, 1989. "Saving and Liquidity Constraints," NBER Working Papers 3196, National Bureau of Economic Research, Inc.
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