This paper introduces a method for solving numerical dynamic stochastic optimization problems that avoids rootfinding operations. The idea is applicable to many microeconomic and macroeconomic problems, including life cycle, buffer-stock, and stochastic growth problems. Software is provided.

Economists have long emphasized the importance of expectations in determining macroeconomic outcomes. Yet there has been almost no recent effort to model actual empirical expectations data; instead, macroeconomists usually simply assume that expectations are "rational." This paper shows that...

This paper examines precautionary behavior by relating job-loss risk to household net worth. We use existing best practice and some new strategies to deal with some problematic issues inherent in this literature regarding proxying uncertainty, instrumentation, and incorporating theoretical...

We estimate the degree of 'stickiness' in aggregate consumption growth (sometimes interpreted as reflecting consumption habits) for thirteen advanced economies. We find that, after controlling for measurement error, consumption growth has a high degree of autocorrelation, with a stickiness...

We estimate how much of the wealth of a sample of respondents to the Panel Study of Income Dynamics is held because some households face more income uncertainty than others. We begin by solving a theoretical model of saving, which we use to develop appropriate measures of uncertainty. We then...

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; 1993) observes that many of the differences can be attributed to the concavity of the...

This paper argues that a model in which consumers have accurate knowledge of their own idiosyncratic circumstances but `sticky expectations' about the macroeconomy can reconcile conflicting evidence about consumption dynamics from micro and macro data. Sluggish aggregate spending growth, which...