The Experts below are selected from a list of 38322 Experts worldwide ranked by ideXlab platform
Yash P Mehra - One of the best experts on this subject based on the ideXlab platform.
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the wealth effect in empirical life cycle Aggregate Consumption equations
Economic Quarterly - Federal Reserve Bank of Richmond, 2001Co-Authors: Yash P MehraAbstract:This article presents an empirical model of U.S. consumer spending that relates Consumption to labor income and household wealth. This specification is consistent with the life-cycle hypothesis of saving first popularized in the 1960s by Ando, Modigliani, and their cohorts. 1 My analysis here extends the previous research in several directions. First, I examine the dynamic relationship between Consumption, income, and wealth using cointegration and error correction methodology. In previous research, the traditional life-cycle model has often been examined using either levels or first differences of these variables. While the use of differences does avoid the pitfall of spurious correlation due to common trending series, it tends to lead to the omission of the long-run equilibrium (cointegrating) relationships that may exist among levels of these variables. In fact, Gali (1990) goes so far as to present a theoretical life-cycle model that generates a common trend in Aggregate Consumption, labor income, and wealth. Therefore, my empirical work here tests for the presence of a long-run equilibrium (cointegrating) relationship between the level of Aggregate consumer spending and its economic determinants such as labor income and wealth. I then examine the short-run dynamic relationship among these variables using an error correction specification proposed in Davidson et al. (1978). The present article investigates whether wealth has predictive content for future Consumption. If it does, then changes in wealth may lead to changes in
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the wealth effect in empirical life cycle Aggregate Consumption equations
Social Science Research Network, 2001Co-Authors: Yash P MehraAbstract:The application of cointegration and error correction methodology to estimate Aggregate Consumption equations relating consumer spending to labor income and household wealth shows unequivocally that wealth has significant effect on consumer spending. Still, the long-term marginal propensity to consume out of equity values is low, indicating that a 1 dollar increase in equity values raises Consumption by 3 to 4 cents. Given the explosion in equity values in the 1990s, however, the magnitude of the Consumption effect is substantial, adding on average 1 percentage point to the annual growth rate of real GDP since 1995. Wealth does have predictive content for future Consumption, indicating that a persistent decline in equity wealth may lead to lower consumer spending.
Douglas T. Breeden - One of the best experts on this subject based on the ideXlab platform.
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an intertemporal asset pricing model with stochastic Consumption and investment opportunities
Social Science Research Network, 2015Co-Authors: Douglas T. BreedenAbstract:This paper derives a single-beta asset pricing model in a multi-good, continuous-time model with uncertain Consumption-goods prices and uncertain investment opportunities. When no riskless asset exists, a zero-beta pricing model is derived. Asset betas are measured relative to changes in the Aggregate real Consumption rate, rather than relative to the market. In a single-good model, an individual's asset portfolio results in an optimal Consumption rate that has the maximum correlation with changes in Aggregate Consumption. If the capital markets are unconstrained Pareto-optimal, then changes in all individuals' optimal Consumption rates are shown to be perfectly correlated.
Alan C Stockman - One of the best experts on this subject based on the ideXlab platform.
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tastes and technology in a two country model of the business cycle explaining international
The American Economic Review, 1995Co-Authors: Linda L Tesar, Alan C StockmanAbstract:Trade on international financial markets allows people to insure country-specific risk and smooth Consumption intertemporally. Equilibrium models of business cycles with trade on global financial markets typically yield international Consumption correlations near one and excessive volatility of investment. The authors incorporate nontraded goods in the model and find that the implications for Aggregate Consumption, investment, and the trade balance are consistent with business-cycle properties of industrialized countries. However, the model driven by technology shocks alone yields counterfactual implications for comovements between Consumption and prices at the sectoral level. Taste shocks produce price-quantity relationships more consistent with the data. Copyright 1995 by American Economic Association.
Robert Kollmann - One of the best experts on this subject based on the ideXlab platform.
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limited asset market participation and the Consumption real exchange rate anomaly
Canadian Journal of Economics, 2012Co-Authors: Robert KollmannAbstract:Under efficient Consumption risk sharing, as assumed in standard international business cycle models, a country’s Aggregate Consumption rises relative to foreign Consumption, when the country’s real exchange rate depreciates. Yet, empirically, relative Consumption and the real exchange rate are essentially uncorrelated. I show that this ‘Consumption-real exchange rate anomaly’ can be explained by a simple model in which a subset of households trade in complete financial markets, while the remaining households lead hand-to-mouth (HTM) lives. HTM behavior also generates greater volatility of the real exchange rate and of net exports, which likewise brings the model closer to the data.
Knut K Aase - One of the best experts on this subject based on the ideXlab platform.
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continuous trading in an exchange economy under discontinuous dynamics a resolution of the equity premium puzzle
Scandinavian Journal of Management, 1993Co-Authors: Knut K AaseAbstract:This paper analyses asset prices, the term structure of the interest rate, the spot price of risk and derives the equilibrium excess returns on risky assets in an exchange economy where the underlying exogenous uncertainty is a pure multidimensional jump process. We derive closed-form solutions for the interest rate and the risk premiums on risky assets, as well as prices of derivative assets for a general class of separable utility indices and endowment processes. Our analysis demonstrates that when the underlying jumps of the Aggregate Consumption process are not negligible, then the traditional form of the Consumption-based capital asset pricing model need not hold and the asset risk premiums may be larger than predicted by the traditional CCAPM in continuous time, based on Ito-diffusion processes. Our alternative model for the equity premiums lends itself to possible empirical testing. We also demonstrate that a more traditional Consumption-based capital asset pricing type model approximately results when the jump sizes in the Aggregate Consumption are small. Our analysis suggests an explanation for the large estimates of the risk premiums reported in empirical tests of the single beta CCAPM. The analytical tool used is stochastic calculus for random point processes represented by random measures.
