Adaptive Consumption Behavior

Peter Howitt and Ömer Özak

No 15427, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper proposes and studies a theory of adaptive consumption behavior under income uncertainty and liquidity constraints. We assume that consumption is governed by a linear function of wealth, whose coefficients are revised each period by a procedure, which, although sophisticated, places few informational or computational demands on the consumer. We show that under a variety of settings, our procedure converges quickly to a set of coefficients with low welfare cost relative to a fully optimal nonlinear consumption function.

JEL-codes: C63 E21 (search for similar items in EconPapers)
Date: 2009-10
New Economics Papers: this item is included in nep-bec, nep-mac and nep-mic
Note: EFG
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Citations: View citations in EconPapers (4)

Published as Howitt, Peter & Ãzak, Ãmer, 2014. "Adaptive consumption behavior," Journal of Economic Dynamics and Control, Elsevier, vol. 39(C), pages 37-61.

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