Questions tagged [consumption]

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Optimal level of consumption in discrete time model with quadratic preferences and infinite horizon

I am trying to derive an expression for the optimal level of consumption in the basic problem: $ max \hspace{1cm} U_t = E_t \left[\sum_{s=t}^{\infty} \beta^{s-t} \left( C_s - a\frac{Cs}{2}^2 \right) ...
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1answer
158 views

Consumption smoothing in RBC Model

I have the following inter temporal utility function: $U(t)=(\frac{s(t)}{1-\sigma})(c_t/c_{t-1}^\gamma)^{(1-\sigma)} - \chi*h(t)$ where $h(t)$ is the hours worked. I know that gamma is responsible ...
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37 views

Some basic Consumption CAPM questions

Say we are in a world described by the consumption CAPM. All investors in this world have quadratic utility. Also, assume that consumption is as follows: $$c_{t+1} = (1+m_t)c_t + s_t c_t e_t $$ where ...
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0answers
73 views

How can you interpret one of the parameters of optimal consumption at the Merton portfolio problem?

Statement: Let the dynamics of wealth of the agent satisfy $$dX_{t} = \pi_tX_t\Big(\mu dt+\sigma dB_{t}\Big)- c_t X_t dt, \qquad \textrm{with}\quad X_0=x_0 \in \mathbb{R},$$ where $(\pi,c)$ is an ...
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0answers
98 views

Europe not self-sufficient in terms of food requirements and consumption?

An acquaintance once told me that Europe is not self-sufficient in terms of food consumption as it does not have enough farmland and farmers to produce enough for all its people, especially in terms ...
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0answers
21 views

Closed form solution to consumption-saving model in discrete time

Consider the simplest consumption-savings model of the following form: $$ \max_{\{c_t,a_{t+1}\}_t}\mathbb{E_0}\sum_{t\geq 0} \beta^tu(c_t) \\ a_{t+1} + c_t = (1+r)a_t + y_t \\ y_t \mid y_{t-1} \sim F $...
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0answers
46 views

The effect of structural unemployment on revenue from value added tax

Bill Gates and European countries have shown favor for consumption/VAT taxes. The arguments given by proponents are often something along the lines that "we know how to tax certain items more than ...
2
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0answers
321 views

Fisher Separation with negative interest rate

In class we discussed Fisher Separation which states that the investment decision is independent of the financing decision. The optimality conditions are that MRS = MRT = (1+i) (i = interest rate). ...
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0answers
66 views

What is the no ponzi condition for this representative consumer problem? Tags: Initial condition, no-ponzi game

This question is following Farhi et.al. 2014's consumer budget constraint modified to add a government bond and removing money. A simplified version is given below which is pertinent to the question. $...
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56 views

What's the conclusion of PIH and LCH?

Both the Life Cycle Hypothesis and Permanent Income Hypothesis concludes the same that permanent income, not the current income, is the primary determinant of consumption. If that is true, then how ...
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17 views

Estimating $dL/dw$ with direct dependencies using total differential

I have $U(C,L) = U(C) - v(L)$ where $C$ is consumption and $L$ is labor supply. From my first order conditions, $C$ is a function of $w$, wage, and $L$. $L$ is a function of $w$ and $C$. Leisure is $N ...
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44 views

Why Does Deficit Spending Work Without a Liquidity Trap?

My understanding is that in a functioning economy, the financial market clears when the nominal interest rate is above zero. It is only when it reaches zero that a liquidity trap occurs and the ...
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0answers
52 views

On Demand Functions and Engel Curves

A consumer has utility function $U(x,y)=(x−2)y$, where $x≥2$ and $y≥0$. The price of $x$ is $P_x$, the price of $y$ is $P_y$ and the consumer's income is $I>2P_x$. ($x$ and $y$ do not have to be ...
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82 views

What is Economic Interpretation of three nonlinear equations?

I have the following nonlinear system $w$ is wealth $c$ is consumption $r(w)$ is gross return on wealth $a,b, d$ are parameters which are strictly positive and fixed. $$\dot{w} =r(w)w-c$$ $$\...
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19 views

Relationship b/w consumption & increase in interest rate

Please help me clarify this- Case 1 - If interest rates increase then people will save more to reap the benefits and will cut down on their consumption(C) so Consumption will fall. Case 2 - Due to ...
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0answers
125 views

What is the trade-off between? Consumption and Leisure or Income and Leisure?

When first presenting the utility function and its arguments, textbooks typically start by stating that utility is a function of consumption and leisure. See for example https://sites.hks.harvard.edu/...
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125 views

Consumer's maximization problem

I am an undergrad trying to learn the basics of NK models (on my own) and I am having some difficulties understanding the derivation of certain equations. So we have the representative household ...
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1answer
69 views

What is the estimated propensity to consume out of wealth, and how does it depend on income levels?

What is the estimated propensity to consume out of wealth, and how does it depend on income levels? To make sure we are talking about the same thing: I am asking what estimates we have on what ...
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96 views

How to prove that the walrasian demand function $x(p,w)$ is continuous in $p$ and $w$?

If the utility function $u$ is continuous and satisfies local nonsatiation, and walrasian demand function $x(p, w)$ is a function (i.e. always map to only single values), how to prove that $x(p,w)$ is ...
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280 views

Interpretation of coefficients in ECM for consumption

Say that we are regressing consumption $C_t$ on time $Y_t$. Furthermore, suppose that both series are $I(1)$ and are co-integrated. Given this, we set up the error correction model (ECM) as follows: $...
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21 views

Numerical Solution Using Excel about optimal consumption of households

I'm not sure how to solve this problem. I'm given the discount factor, interest rate, probability of high income shock, and various income shock sizes that I need to use to compute optimal consumption....
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28 views

Autonomous spending

"The term $\left(c_{0}+IQ+G-c_{1}T\right)$ is that part of the demand for goods that does not depend on output here ($c_{1}$ is mpc)." Can someone please explain how will you interpret government ...
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22 views

lifetime consumption explained

The formula for today's consumption is defined as: $$C = Y - T -S^P $$ That being said the consumption of tomorrow is: $$C' = Y' - T' + S^P(1+r)$$ Could anyone possibly explain to me why the ...
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84 views

Is utility function used in customer data/profile analysis? What alternatives in practice?

Utility function is great theoretical concept but is it used in customer data analysis or in building customer profile (e.g. from Big data or cash register/checkout data, ecommerce history) or in ...
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45 views

Keynesian consumption law not applicable in USA ?

I was looking at some numbers and saw that in USA in 2010 consumption was at 70% but savings were close to zero and that even places were there is high income savings are still low while the keynesian ...