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Most Downloaded Articles
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- Who Gets the Credit? And Does It Matter? Household vs. Firm Lending Across Countries by Beck, Thorsten/ Büyükkarabacak, Berrak/ Rioja, Felix K. and Valev, Neven T.
- Monetary and Macroprudential Policy Rules in a Model with House Price Booms by Kannan, Prakash/ Rabanal, Pau and Scott, Alasdair M.
- Is Discretionary Fiscal Policy in Japan Effective? by Rafiq, Sohrab
- In search of lost time: the neoclassical synthesis by De Vroey, Michel and Duarte, Pedro Garcia
The Buffer-Stock Consumption Model with Endogenous Income Shifts
1Centre for Economic and Business Research (CEBR) and University of Southern Denmark, email@example.com
2Royal Veterinary and Agricultural University and Centre for Economic and Business Research (CEBR), firstname.lastname@example.org
Citation Information: Contributions in Macroeconomics. Volume 5, Issue 1, Pages –, ISSN (Online) 1534-6005, DOI: 10.2202/1534-6005.1108, June 2005
- Published Online:
Credit-constrained households must use savings both to smooth consumption and to finance productive investments. This non-separability between consumption and production decisions is ignored in the standard intertemporal buffer-stock consumption model where income growth is exogenous. This paper develops an intertemporal model of household consumption and investment in the presence of credit constraints and income uncertainty. Investment options are modelled as irreversible, indivisible, and non-stationary, allowing for endogenous income growth. The resulting behaviour is markedly different from that of the standard buffer-stock model.