Adaptive Consumption Behavior / Peter Howitt, Ömer Özak.

Format:

Book

Author/Creator:

Howitt, Peter.

Contributor:

National Bureau of Economic Research.

Özak, Ömer.

Series:

Working Paper Series (National Bureau of Economic Research) no. w15427.

NBER working paper series no. w15427

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2009.

Summary:

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.

Notes:

Print version record

October 2009.