### 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 language | English (US) |
---|---|

Pages (from-to) | 365-395 |

Number of pages | 31 |

Journal | Review of Economic Dynamics |

Volume | 3 |

Issue number | 3 |

State | Published - Jul 2000 |

### Fingerprint

### Keywords

- Uncertainty; consumption; permanent income hypothesis

### ASJC Scopus subject areas

- Economics and Econometrics

### Cite this

*Review of Economic Dynamics*,

*3*(3), 365-395.

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

Research output: Contribution to journal › Article

*Review of Economic Dynamics*, vol. 3, no. 3, pp. 365-395.

}

TY - JOUR

T1 - Optimal Intertemporal Consumption under Uncertainty

AU - Chamberlain, Gary

AU - Wilson, Charles A.

PY - 2000/7

Y1 - 2000/7

N2 - 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.

AB - 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.

KW - Uncertainty; consumption; permanent income hypothesis

UR - http://www.scopus.com/inward/record.url?scp=0013323249&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=0013323249&partnerID=8YFLogxK

M3 - Article

VL - 3

SP - 365

EP - 395

JO - Review of Economic Dynamics

JF - Review of Economic Dynamics

SN - 1094-2025

IS - 3

ER -