Luo, Yulei (2014): Strategic Consumption-Portfolio Rules and Precautionary Savings with Informational Frictions.
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Abstract
This paper provides a tractable continuous-time CARA-Gaussian framework to explore how the interactions of risk aversion and induced uncertainty due to informational frictions determine strategic consumption-portfolio rules, precautionary savings, and consumption dynamics in the presence of uninsurable labor income. Specifically, after solving the model explicitly, we explore the relative importance of the two types of induced uncertainty: (i) model uncertainty due to robustness and (ii) state uncertainty due to limited information-processing capacity as well as risk aversion in determining asset allocation, precautionary savings, and consumption dynamics. Finally, we discuss how the separation between risk aversion and intertemporal substitution affects strategic asset allocation and precautionary savings.
Item Type: | MPRA Paper |
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Original Title: | Strategic Consumption-Portfolio Rules and Precautionary Savings with Informational Frictions |
Language: | English |
Keywords: | Robustness, Model Uncertainty, Rational Inattention, Uninsurable Labor Income, Strategic Asset Allocation, Precautionary Savings |
Subjects: | C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis D - Microeconomics > D8 - Information, Knowledge, and Uncertainty D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy |
Item ID: | 58077 |
Depositing User: | Yulei Luo |
Date Deposited: | 24 Aug 2014 03:55 |
Last Modified: | 04 Oct 2019 16:29 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/58077 |
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