Saving rates and portfolio choice with subsistence consumption

We analytically show that a common across rich/poor individuals Stone-Geary utility function with subsistence consumption in the context of a simple two-asset portfolio-choice model is capable of qualitatively and quanti
We analytically show that a common across rich/poor individuals Stone-Geary utility function with subsistence consumption in the context of a simple two-asset portfolio-choice model is capable of qualitatively and quantitatively explaining: (i) the higher saving rates of the rich, (ii) the higher fraction of personal wealth held in risky assets by the rich, and (iii) the higher volatility of consumption of the wealthier. On the contrary, time-variant “keeping-up-with-the-Joneses” weighted average consumption which plays the role of moving benchmark subsistence consumption gives the same portfolio composition and saving rates across the rich and the poor, failing to reconcile the model with what micro data say. JEL Classification: G11, D91, E21, D81, D14, D11 Keywords: Elasticity of Intertemporal Substitution, Stone-Geary Preferences, Two-asset Portfolio, Household Portfolios, Wealth Inequality, Controlled Diffusion
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Metadaten
Author:Carolina Achury, Sylwia Hubar, Christos Koulovatianos
URN:urn:nbn:de:hebis:30-92944
Series (Serial Number):CFS working paper series (2011, 06)
Document Type:Working Paper
Language:English
Date of Publication (online):2011/03/08
Year of first Publication:2011
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2011/03/08
Tag:Elasticity of Intertemporal Substitution ; Household Portfolios ; Stone-Geary Preferences ; Two-asset Portfolio ; Wealth Inequality
HeBIS PPN:234640871
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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