Economists working with numerical solutions to the optimal consumption/saving problem under uncertainty have long known that there are quantitatively important interactions between liquidity constraints and precautionary saving behavior. This paper provides the analytical basis for those...

Economists working with numerical solutions to the optimal consumption/saving problem under uncertainty have long known that there are quantitatively important interactions between liquidity constraints and precautionary saving behavior. This paper provides the analytical basis for those...

Zeldes (1989), Carroll (1992,1993), and others have shown that optimal consumption behavior for consumers facing income uncertainty can be remarkably different from the certainty-equivalent case. Carroll (1992) observes that many of the differences can be attributed to the concavity of the...