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A continuous-time sequential job search model with savings and CARA preferences is solved analytically without resorting to unlimited borrowing and real-valued consumption. I isolate the effects of limited borrowing and nonnegative consumption as well as risk-aversion on the reservation wage by...
A continuous-time sequential job search model with savings and CARA preferences is solved analytically without resorting to unlimited borrowing and real-valued consumption. I isolate the effects of limited borrowing and nonnegative consumption as well as risk-aversion on the reservation wage by...
Idiosyncratic labor incomes are typically modeled either by stochastic processes with heterogeneous income profiles (HIPs) or restricted income profiles (RIPs). The HIP assumes that individual labor income grows deterministically at an unobserved rate and contains a persistent but stationary...
The current literature offers two views on the nature of the income process. According to the first view, which we call the “restricted income profiles” (RIP) model (MaCurdy, 1982), individuals are subject to large and very persistent shocks, while facing similar life-cycle income profiles...
This paper, using the different alternative methods of dynamic optimization (the Lagrange/Kuhn-Tucker (LKT) method, the substitution method, the Hamiltonian method, and the dynamic programming approach) derives the conditions that must be satisfied by the solution to the so-called Ramsey...
Assets in tax-deferred retirement accounts (TDA) and housing are two major components of household portfolios. In this paper, we develop a life-cycle model to examine the interaction between households' use of TDA and their housing decisions. The model generates life-cycle patterns of home...
This paper proposes a new approach for modeling investor fear after rare disasters. The key element is to take into account that investors’ information about fundamentals driving rare downward jumps in the dividend process is not perfect. Bayesian learning implies that beliefs about the...
This paper proposes a new approach for modeling investor fear after rare disasters. The key element is to take into account that investors' information about fundamentals driving rare downward jumps in the dividend process is not perfect. Bayesian learning implies that beliefs about the...
This paper, using the different alternative methods of dynamic optimization (the Lagrange/Kuhn-Tucker (LKT) method, the substitution method, the Hamiltonian method, and the dynamic programming approach) derives the conditions that must be satisfied by the solution to the so-called Ramsey...
Recent research has shown that the "spirit of capitalism"¡ªa preference for wealth itself, in addition to consumption¡ªhas important implications for growth and asset pricing. This paper explores how the spirit of capitalism affects saving and consumption behavior. We demonstrate that the...