TY - JOUR
T1 - Consumption, Wealth, and Indebtedness in the Context of Uncertainty
T2 - The Consumption Function Meets Portfolio Theory
AU - Gareth Thomas, David
AU - Bywaters, David
PY - 2006
Y1 - 2006
N2 - The ojective of this paper is to provide a sound theoretical framework for the empirical analysis of consumer indetedness, by integrating Portfolio theory with the Life-Cycle Hypothesis (LCH) model of consumption. Modern versions of this LCH theory almost always assume that utility is additive over time, but this study, the multiplicative Cobb-Douglas function is used. The new sythesis also explains the stochastic properities of consumption more fully and clearly than previous studies, in particular the uncerttainty arising from the rates of return on risky assets. The new theory will also help to improve the explanation of the surprise changes in consumption because these sources of risk are incorporated explicitly into the analysis.
AB - The ojective of this paper is to provide a sound theoretical framework for the empirical analysis of consumer indetedness, by integrating Portfolio theory with the Life-Cycle Hypothesis (LCH) model of consumption. Modern versions of this LCH theory almost always assume that utility is additive over time, but this study, the multiplicative Cobb-Douglas function is used. The new sythesis also explains the stochastic properities of consumption more fully and clearly than previous studies, in particular the uncerttainty arising from the rates of return on risky assets. The new theory will also help to improve the explanation of the surprise changes in consumption because these sources of risk are incorporated explicitly into the analysis.
U2 - 10.1007/s11294-006-9018-2
DO - 10.1007/s11294-006-9018-2
M3 - Article
SN - 1573-966x
VL - 12
SP - 298
EP - 307
JO - International Advances in Economic Research
JF - International Advances in Economic Research
IS - 3
ER -