English, Article, Journal or magazine article edition: An analytical approach to buffer-stock saving Yi Wen

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Bookmark: http://trove.nla.gov.au/version/27882
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • An analytical approach to buffer-stock saving
Author
  • Yi Wen
Physical Description
  • preprint
Notes
  • RePEc:fip:fedlwp:2009-026
  • The profession has been longing for closed-form solutions to consumption functions under uncertainty and borrowing constraints. This paper proposes an analytical approach to solving buffer-stock saving models with both idiosyncratic and aggregate uncertainties. It is shown analytically that an individual’s optimal consumption plan under uncertainty follows the rule of thumb: Consumption is proportional to a target wealth with the marginal propensity to consume depending on the state of the macroeconomy. The method is applied to addressing two long- standing puzzles: the "excess smoothness" and "excess sensitivity" of consumption with respect to income changes. Some of my findings sharply contradict the conventional wisdom.
  • Saving and investment ; Income
Language
  • English
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