I study how boundedly rational agents can learn the solution to an infinite horizon optimal consumption problem under uncertainty and liquidity constraints. I present conditions for the existence of an optimal linear consumption rule and characterize it. Additionally, I use an empirically...

I study how boundedly rational agents can learn a “good” solution to an infinite horizon optimal consumption problem under uncertainty and liquidity constraints. Using an empirically plausible theory of learning I propose a class of adaptive learning algorithms that agents might use to...

Modern consumer theories are built upon the premise of the forward looking behavior of households. While most of the empirical studies at micro level are based on Euler equation, there have been few to estimate the household consumption function and test the implication of forward looking...

Modern consumer theories are built upon the premise of the forward looking behavior of households. While most of the empirical studies at micro level are based on Euler equation, there have been few to estimate the household consumption function and test the implication of forward looking...

This paper analyzes the optimal consumption behavior of a consumer who faces uninsurable labor income risk and borrowing constraints. In particular, it provides conditions under which the decision rule for consumption is a concave function of existing assets. The current study presents two main...

This paper examines the theoretical foundations of precautionary wealth accumulation in a multi-period model where consumers face uninsurable earnings risk and borrowing constraints. We begin by characterizing the consumption function of individual consumers. We show that consumption function is...

Recent empirical studies suggest that the average marginal propensity to consume (MPC) has declined. This paper explains the declining trend of the MPC with a standard representative consumer model where borrowing constraints become more relaxed as suggested by data. With an increase in...

This paper examines the theoretical foundations of precautionary wealth accumulation in a multi-period model where consumers face uninsurable earnings risk and borrowing constraints. We begin by characterizing the consumption function of individual consumers. We show that consumption function is...