Optimal Intertemporal Consumption under Uncertainty

Gary Chamberlain, Charles A. Wilson

    Research output: Contribution to journalArticle

    Abstract

    We analyze the optimal consumption program of an infinitely lived consumer who maximizes the discounted sum of utilities subject to a sequence of budget constraints where both the interest rate and his income are stochastic. We show that if the income and interest rate processes are sufficiently stochastic and the long run average rate of interest is greater than or equal to the discount rate, then consumption eventually grows without bound with probability one. We also establish conditions under which the borrowing constraints must be binding and examine how the income process affects the optimal consumption program. Journal of Economic Literature Classification Number: D91.

    Original languageEnglish (US)
    Pages (from-to)365-395
    Number of pages31
    JournalReview of Economic Dynamics
    Volume3
    Issue number3
    StatePublished - Jul 2000

    Fingerprint

    Uncertainty
    Income
    Optimal consumption
    Interest rates
    Borrowing constraints
    Economics
    Budget constraint
    Discount rate

    Keywords

    • Uncertainty; consumption; permanent income hypothesis

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Chamberlain, G., & Wilson, C. A. (2000). Optimal Intertemporal Consumption under Uncertainty. Review of Economic Dynamics, 3(3), 365-395.

    Optimal Intertemporal Consumption under Uncertainty. / Chamberlain, Gary; Wilson, Charles A.

    In: Review of Economic Dynamics, Vol. 3, No. 3, 07.2000, p. 365-395.

    Research output: Contribution to journalArticle

    Chamberlain, G & Wilson, CA 2000, 'Optimal Intertemporal Consumption under Uncertainty', Review of Economic Dynamics, vol. 3, no. 3, pp. 365-395.
    Chamberlain G, Wilson CA. Optimal Intertemporal Consumption under Uncertainty. Review of Economic Dynamics. 2000 Jul;3(3):365-395.
    Chamberlain, Gary ; Wilson, Charles A. / Optimal Intertemporal Consumption under Uncertainty. In: Review of Economic Dynamics. 2000 ; Vol. 3, No. 3. pp. 365-395.
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