Saving Rates and Portfolio Choice with Subsistence Consumption

Carolina Achury, Sylwia Hubar and Christos Koulovatianos

Discussion Papers from University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM)

Abstract: 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 explaining: (i) the higher saving rates of the rich, (ii) the higher fraction of personal wealth held in stocks 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 playing 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.

Keywords: elasticity of intertemporal substitution; Stone-Geary preferences; two-asset portfolio; household portfolios; wealth inequality; controlled diffusion. (search for similar items in EconPapers)
Date: 2010-01
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Related works:
Journal Article: Saving Rates and Portfolio Choice with Subsistence Consumption (2012)
Working Paper: Saving rates and portfolio choice with subsistence consumption (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notcfc:10/01

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