Scribd Logo
Upload

Welcome to Scribd!

  • Lecture Slides 1

    Uploaded by

    Jamshidbek Odiljonov
    18 views60 pages
    This document discusses consumption choices when there is uncertainty about future income. It presents a model where an individual chooses current and future consumption given a probability of high or low future income. It shows that optimal consumption depends on risk aversion and the interest rate. If the interest rate is higher than the individual's relative risk aversion, current consumption will be higher than future consumption.

    Original Description:

    zzzzzzz

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    This document discusses consumption choices when there is uncertainty about future income. It presents a model where an individual chooses current and future consumption given a probability of high or low future income. It shows that optimal consumption depends on risk aversion and the interest rate. If the interest rate is higher than the individual's relative risk aversion, current consumption will be higher than future consumption.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    18 views60 pages

    Lecture Slides 1

    Uploaded by

    Jamshidbek Odiljonov
    This document discusses consumption choices when there is uncertainty about future income. It presents a model where an individual chooses current and future consumption given a probability of high or low future income. It shows that optimal consumption depends on risk aversion and the interest rate. If the interest rate is higher than the individual's relative risk aversion, current consumption will be higher than future consumption.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 60

    I

    )
    )
    )

    F
    F

    F
    F
    I
    I

    I
    I

    I
    I

    I
    I

    I
    I

    I
    I

    )
    )
    I

    I ⇡
    $
    I ⇡
    R> <

    t=
    I
    I I 

    t=
    ! !
    ! < ! R>
    I ⇡ t=
    I ⇡ t=
    t=

    U(c , c ) = ⇡u(c ) + ( ⇡)u(c )


    u0 > u 00 <

    u 00 (x)
    x 0 >
    u (x)
    )
    )

    )
    )

    )
    )

    )
    )

    )
    max ⇡u(c ) + ( ⇡)u(c )
    c ,c

    ⇡c = I
    I

    ( ⇡)c = IR
    ⇡
    c
    ⇡c + ( ⇡) =
    R
    ⇡c + ( ⇡) cR =
    )

    u 0 (c )
    =R
    u 0 (c )

    I u 0 (c ) > u 0 (c ) ) c < c
    max ⇡u(c ) + ( ⇡)u(c )
    c ,c
    s.t. c = ( I) + I 
    c =( I ) + IR

    I I = !c =c =
    I I = !c = c =R

    c
    ⇡c + ( ⇡) <
    R
    t=
    p
    I p t=
    t=
    I t=

    I p>
    ! t=

    c =( I ) + p · IR IR
    I
    c = + IR ( I) t=
    p
    I
    p ( ⇡) p = ⇡IR
    I R> p
    !I = Rstorage < Rproductive & sell bond
    I R< p
    !I = Rstorage & buy bond > Rproductive
    p= R

    I
    c =( I ) + pIR = c = + IR = R
    p

    c
    ⇡c + ( ⇡) =
    R
    )
    u 0 (c ) = Ru 0 (c )

    RRA >
    00
    @(xu 0 (x))
    x uu0 (x)
    >(x)
    @x = xu 00 (x) + u 0 (x) <
    0
    ) xu (x) x
    ⇡ u0
    R> RRA > c = c =R
    u (c ) > Ru 0 (c )
    0

    c⇤ > c⇤ < R
    !
    !
    c⇤ c⇤

    t= c⇤ < c⇤

    t=
    I u(c ⇤ ) < u(c ⇤ )
    )t=
    I = ⇡c ⇤ D=

    I = ⇡c ⇤

    c⇤
    c⇤ ( ⇡)c ⇤ = ( ⇡c ⇤ )R
    c⇤ < c⇤
    ⇡c ⇤ < c ⇤
    c⇤ t=
    c⇤ >
    c⇤ < R
    t= c⇤
    ) g

    ⇤ ⇤ ⇤ c⇤ ⇡c ⇤
    c = ⇡c + g ( ⇡c ) ) g = > E
    | {z } ( ⇡c ⇤ )

    ) < < c⇤
    t= )
    I

    I
    I

    I
    I

    I
    I
    I

    I
    I

    I
    I
    I

    !
    I

    I t=
    I t=

    You might also like