Chapter

New Directions: Beyond Permanent Income

Angus Deaton

in Understanding Consumption

Published in print October 1992 | ISBN: 9780198288244
Published online November 2003 | e-ISBN: 9780191596131 | DOI: http://dx.doi.org/10.1093/0198288247.003.0006

Series: Clarendon Lectures in Economics

 New Directions: Beyond Permanent Income

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Explores two important issues in contemporary consumption theory: the precautionary motive for savings and liquidity constraints. The author shows how to solve simple models with precautionary savings involving isoelastic utility and solve for consumption in the absence of certainty equivalence. The intertemporal consumption choice of liquidity‐constrained consumers is modelled, and simulated paths for income, consumption, and assets are discussed.

Keywords: certainty equivalence; intertemporal consumption; isoelastic utility; liquidity constraints; precautionary savings; simulated paths

Chapter.  14831 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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