1
$\begingroup$

In a paper I was reading, a budget constraint for the Euler equation for the consumption asset was described as:-

$$ W_{t+1} = (W_t - C_t) R_{c, t+1} $$

Here $ R_{c, t+1}$ is the 'return to the consumption asset'. What does this mean?

Paper: Volatility, the Macroeconomics, and Asset Prices

$\endgroup$
1
$\begingroup$

On the previous page (introducing equation 2.2) the authors state that "consumption asset" means "wealth portfolio", so $R_{c,t+1}$ is the return to the wealth portfolio, which makes sense from the equation you quote.

the log return to the consumption asset (wealth portfolio), $r_{c,t+1}$.

| improve this answer | |
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.