An Approximate Consumption Function

Mario Padula

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: This paper proposes an approximation to the consumption function in the buffer-stock model. The approximation is based on the analytic properties of the consumption function in the buffer-stock model. In such model, the consumption function is increasing and concave and its derivative is bounded from above and below. We compare the approximation with the consumption function obtained using the endogenous grid point algorithm and show that using the former or the latter for estimating the Euler equation leads to very similar results.

Keywords: Buffer stock model of saving; Computational methods; Approximation methods and estimation (search for similar items in EconPapers)
JEL-codes: C63 D12 E21 (search for similar items in EconPapers)
Date: 2008-07-01
New Economics Papers: this item is included in nep-cmp, nep-dge and nep-mac
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Citations: View citations in EconPapers (1)

Published in Journal of Economic Dynamics and Control, 2010, 34(3), 404-416

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http://www.csef.it/WP/wp199.pdf (application/pdf)

Related works:
Journal Article: An approximate consumption function (2010)
Working Paper: An approximate consumption function (2008)
Working Paper: An approximate consumption function (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:199

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