Asymptotic Linearity of Consumption Functions and Computational Efficiency

Qingyin Ma and Alexis Akira Toda

Papers from arXiv.org

Abstract: We prove that the consumption functions in optimal savings problems are asymptotically linear if the marginal utility is regularly varying. We also analytically characterize the asymptotic marginal propensities to consume (MPCs) out of wealth. Our results are useful for obtaining good initial guesses when numerically computing consumption functions, and provide a theoretical justification for linearly extrapolating consumption functions outside the grid.

Date: 2020-02, Revised 2021-03
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (2)

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Journal Article: Asymptotic linearity of consumption functions and computational efficiency (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2002.09108

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