Recursive least squares learning is a central concept employed in selecting amongst competing outcomes of dynamic stochastic economic models. In employing least squares estimators, such learning relies on the assumption of a symmetric loss function defined over estimation errors. Within a...

Uninsurable income risk is often cited as an explanation for empirical deviations from the Lifecycle/Permanent-Income Hypothesis such as the observation that the life-cycle profile of mean consumption is hump-shaped. Most methods used for estimating income uncertainty essentially measure the...

Contrary to the usual presumption that welfare is maximized if consumers behave rationally, we show in a two-period overlapping generations model that there always exists a rule of thumb that can weakly improve upon the lifecycle/permanent-income rule in general equilibrium with irrational...

A puzzle in consumption theory is the observation of a hump in age-consumption profiles. We study a general equilibrium life-cycle economy with capital in which households include both consumption and leisure in their period utility function. We calibrate the model and find that a significant...