Uninsured Idiosyncratic Risk and Aggregate Saving
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In this article, the authors present a qualitative and quantitative analysis of the standard growth model modified to include precautionary saving motives and liquidity constraints, and address the impact on the aggregate saving rate, the importance of asset trading to individuals, and the relative inequality of wealth and income distributions.Abstract:
We present a qualitative and quantitative analysis of the standard growth model modified to include precautionary saving motives and liquidity constraints. We address the impact on the aggregate saving rate, the importance of asset trading to individuals, and the relative inequality of wealth and income distributions.read more
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References
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THE EQUITY PREMIUM A Puzzle
Rajnish Mehra,Edward C. Prescott +1 more
TL;DR: This paper showed that an equilibrium model which is not an Arrow-Debreu economy will be the one that simultaneously rationalizes both historically observed large average equity return and the small average risk-free return.
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Recursive methods in economic dynamics
TL;DR: In this article, a deterministic model of optimal growth is proposed, and a stochastic model is proposed for optimal growth with linear utility and linear systems and linear approximations.
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Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence
Robert E. Hall,Robert E. Hall +1 more
TL;DR: In this paper, the marginal utility of consumption evolves according to a random walk with trend, and consumption itself should evolve in the same way, and the evidence supports a modified version of the life cycle permanent income hypothesis.
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Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence
TL;DR: In this article, the authors show that no variable apart from current consumption should be of any value in predicting future consumption, except real disposable income, which has no predictive power for consumption, but rejected for an index of stock prices.
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Consumption and Liquidity Constraints: An Empirical Investigation
TL;DR: In this article, the authors test the permanent income hypothesis against the alternative hypothesis that consumers optimize subject to a well-specified sequence of borrowing constraints, and the results generally support the hypothesis that an inability to borrow against future labor income affects the consumption of a significant portion of the population.