Optimal consumption under uncertainty,liquidity constraints,and bounded rationality

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 choose a consumption rule. I show that the algorithm always has a globally asymptotically stable consumption rule, which is optimal. Additionally, I present extensions of the model to finite horizon settings, where agents have finite lives and life-cycle income patterns. This provides a simple and parsimonious model of consumption for large agent based models.     

Inflationary equilibrium in a stochastic economy with independent agents

We prove the existence of stationary monetary equilibrium with inflation in a “Bewley” model with constant aggregate real variables but with idiosyncratic shocks to the endowments of a continuum of individual agents, when a central bank stands ready to borrow or lend fiat money at a fixed nominal rate of interest and the agents face borrowing constraints. We also find that, in the presence of real micro uncertainty about individual endowments, the rate of inflation is higher (equivalently, the real rate of interest is lower) than it would be in a “certainty-equivalent economy”; to wit, one in which every agent’s endowment is replaced by its expected value. Thus, underlying microeconomic uncertainty and borrowing constraints are shown to generate additional inflation.     

Necessity of hyperbolic absolute risk aversion for the concavity of consumption functions

Carroll and Kimball (1996) have shown that, in the class of utility functions that are strictly increasing, strictly concave, and have nonnegative third derivatives, hyperbolic absolute risk aversion (HARA) is sufficient for the concavity of consumption functions in general consumption-saving problems. This paper shows that HARA is necessary, implying the concavity of consumption is not a robust prediction outside the HARA class.     

转轨时期中国城乡居民消费行为比较研究

本文选取分省(市、自治区)的板块统计数据,运用预防性储蓄和流动性约束假说以及动态建模方法,对转轨时期中国城乡居民的消费行为特征进行了比较研究。实证检验结果表明,中国城镇居民中受流动性约束者的比重要大于农村居民,而农村居民对不确定性以及实际利率变动的反应则要比城镇居民更加敏感,同时,其长期收入弹性系数也较城镇居民要高一些。因此,解决目前的消费不振,迫切需要更多地关注农村和农民问题。     

Consumer credit and consumption forecasts

Recent advances in the theory of consumer behavior indicate that consumption may exhibit non-linear dynamics characterized by occasional surges. Building upon them, and taking explicitly into account the forward-looking nature of consumption, this paper argues that rising consumer debt can signal such surges, as well as the consumption underprediction which will occur if they are not taken sufficiently into account in forecasting. This insight is tested with and strongly confirmed by the Organization of Economic Cooperation and Developments forecasts for the USA. The results should be of interest not only to professional forecasters and policy-makers, but also to theoretical economists and econometricians who study non-linear dynamic models.     

Solving the liquidity constraint by options on futures

The aim of this paper is to show that an option on futures may solve the liquidity constraint problem. I consider a consumer (or an investor) who wishes to discount her future income in order to finance her present consumption (investment). Under asymmetric information, such an agent may incur a liquidity constraint (credit rationing). However, the optimal constrained consumption, as a function of future income, resembles a short position of a put option written on future income. This implies that allocating savings to a long call option position on futures may restore the unconstrained relationship between the optimal present consumption and future income. The option on a futures contract is constructed so that the (future) agent’s income is correlated with some futures contract (but this is private information) on which the option is issued. The allocation of savings of the borrower to the option on futures turns out to be financially beneficial compared to the allocation of savings to the risk-free investment.     

The long-run cost of job loss as measured by consumption changes

We consider the measurement of the cost of job displacement. With a Canadian panel survey we compare the consumption growth of households that experienced a permanent layoff to a control group of households that experienced a temporary layoff with known recall date. Because the firms employing the latter group are providing insurance, these workers approximate a benchmark of full insurance against job loss shocks. We estimate that permanent layoffs experience an average consumption loss of between 4% and 10%. Older workers and workers with high job tenure have losses closer to the top of this range.     

Revisiting the effect of household size on consumption over the life-cycle

Although the link between household size and consumption has strong empirical support, there is no consistent way in which demographics are dealt with in standard life-cycle models. We study the relationship between the predictions of the Single Agent model (the standard in the literature) versus a simple model extension (the Demographics model) where deterministic changes in household size and composition affect optimal consumption decisions. We show theoretically that the Demographics model is conceptually preferable to the Single Agent model as it captures economic mechanisms ignored by the latter. However, our quantitative analysis demonstrates that differences in predictions for consumption are negligible across models, when using standard calibration strategies. This suggests that it is largely irrelevant which model specification is used.     

Demand for cash with intra-period endogenous consumption

We extend the literature on the demand for money by relaxing the assumption of a constant rate of consumption. Although total consumption is still fixed over the period, agents can choose more than one rate of consumption and cash depletion in the period to minimize the cost of money management. Consistent with empirical evidence, we find that agents do not smooth intra-period consumption. Instead, their rate of consumption will be positively related to their cash position. This positive correlation depends on the volatility of the consumption process.     

Pricing behavior of exchange traded funds

We attempt to determine whether characteristics found to be effective indicators of individual stock price performance are effective indicators of exchange traded fund (ETF) price performance. Specifically, we test the performance of investing strategies based on separately categorizing ETFs into deciles according to size, trading volume, and momentum. When analyzing the entire sample, we find that the indicators can effectively signal differences in future performance. However, the indicators appear to be indirect proxies for the types of ETFs (broad-based, sector, or international). When we isolate each type of ETF, the indicators are not as effective. The indicators are not as useful for signaling unusual stock price performance of ETFs as they have been for individual stocks. We attribute the distinctly different results found here for ETFs to the unusual characteristics of ETFs that distinguish them from individual stocks. Investing strategies that rely on these indicators for selecting individual stocks may be indirectly driven by stock-specific fundamentals. However, fundamentals are not as meaningful for stock indexes (represented by ETFs) as for individual stocks.

Liquidity constrained exporters

I propose a model of international trade with liquidity constraints. If firms must pay a fixed entry cost in order to access foreign markets, and if they face liquidity constraints to finance these costs, only those firms that have sufficient liquidity are able to export. A set of firms could profitably export, but are prevented from doing so because they lack sufficient liquidity. More productive firms that generate large liquidity from their domestic sales, and wealthier firms that inherit a large amount of liquidity, are more likely to export. This model offers a potential explanation for the apparent lack of sensitivity of exports to exchange rate fluctuations. When the exchange rate appreciates, existing exporters lose competitiveness abroad, and are forced to reduce their exports. At the same time, the value of domestic assets owned by potential exporters increases. Some liquidity constrained exporters start exporting. This dampens the anti-competitiveness impact of a currency appreciation. Under some conditions, it may reverse it altogether and increase aggregate exports. In this sense, the model is able to rationalize the co-existence of competitive devaluations and competitive revaluations.     

一类供应链分销网络的双层多目标规划模型

以多生产商、多分销中心的供应链分销网络为基础,建立了多目标双层机会约束规划模型。基于协同供应链管理思想,充分考虑了多生产厂商相互制约以及决策信息的不完整性、市场需求不确定性,探讨如何实现整体成本的最小化。最后,结合一种算法给出了该模型的求解方法,并结合一个实例证明算法的有效性。     

A time varying parameter approach to the Chinese aggregate consumption function

China experienced a number of economic, political and social upheavals in the pre-reform period, together with a gradual transformation from a centrally-planned to a market oriented economy in the post-reform period. Given this background of extensive change, a time varying parameter (TVP) consumption model for non-durables is developed in order to determine the resulting changes in consumer behaviour caused by both observable and unobservable factors. The parameters of interest are the short and long run marginal propensities to consume (MPC) and the long run average propensity to consume (APC). The model is based on Friedman's permanent income hypothesis (PIH) and estimated using the Kalman filter algorithm. The empirical results suggest that the TVP model is a good representation of the changes in Chinese consumer behaviour over time. In terms of forecasting, the TVP model generally outperforms a number of alternative models.     

An agent-based model of payment systems

We lay out and simulate a multi-agent, multi-period model of an RTGS payment system. At the beginning of the day, banks choose how much costly liquidity to allocate to the settlement process. Then, they use it to execute an exogenous, random stream of payment orders. If a bank's liquidity stock is depleted, payments are queued until new liquidity arrives from other banks, imposing costs on the delaying bank. We study the equilibrium level of liquidity posted in the system, performing some comparative statics and obtaining insights on the efficiency of alternative system configurations.     

压力利用率与锤耗的关系研究

主要从六面顶压机顶锤对合成块施压的过程中,合成块所承受压力的受力分析,研究压力变化对锤耗的影响,总结出合成块组装高度设计、试验的理论依据,提出了检验组装高度的技术指标,提高设计可靠性,缩短试验周期,减少生产过程中的顶锤消耗。     

Assessing Ricardian equivalence for the New Member States: Does debt-neutrality matter?

Using a structural model based on dynamic optimizing agents, we empirically test the Ricardian equivalence proposition (REP) for 11 New EU-Member States (NMS). We extend the basic model by including the government budget constraint, thus being able to evaluate whether individuals take the evolution of public debt into account. In the basic setting we cannot reject the validity of the REP for four NMS, in the extended model the relevance of the REP changes for six countries, implying that the development of government debt and long-term sustainability of public finances matters with regard to the validity of the REP.     

Using dynamic programming with adaptive grid scheme for optimal control problems in economics

The study of the solutions of dynamic models with optimizing agents has often been limited by a lack of available analytical techniques to explicitly find the global solution paths. On the other hand, the application of numerical techniques such as dynamic programming to find the solution in interesting regions of the state was restricted by the use of fixed grid size techniques. Following Grüne (Numer. Math. 75 (3) (1997) 319; University of Bayreuth, submitted, 2003), in this paper an adaptive grid scheme is used for finding the global solutions of discrete time Hamilton–Jacobi–Bellman equations. Local error estimates are established and an adapting iteration for the discretization of the state space is developed. The advantage of the use of adaptive grid scheme is demonstrated by computing the solutions of one- and two-dimensional economic models which exhibit steep curvature, complicated dynamics due to multiple equilibria, thresholds (Skiba sets) separating domains of attraction and periodic solutions. We consider deterministic and stochastic model variants. The studied examples are from economic growth, investment theory, environmental and resource economics.     

Stability or restructuring? Macroeconomic dynamics under soft budget constraint problems

In this paper, we examine how a decrease in firms’ productivity or the degree of financial market imperfection affects macroeconomic dynamics when the bank has an incentive to misallocate its credit. We develop a model that incorporates a soft budget constraint into a simplified version of Kiyotaki and Moore (1997) environment and show that soft budget constraint problems may arise if the economy becomes less productive or the financial market is less developed. Because of this shift in firms’ productivity, not only do more bad projects survive, but profitable new entrants are crowded out, so that, as in transition economies and Japan in the 1990s, the recession is not only prolonged, but also becomes more severe in the long term.     

教学改革创新与学习型组织创建

教学改革中面对的常见问题包括参与者对教学改革目标的理解力问题、教学内容改革中师资配合问题、教学方法改革的适应力问题和教学改革的执行力问题。上述问题可以通过构建学习型组织来解决。学习型组织通过将教学改革目标与教师职业生涯规划有机结合来,调动参与者的积极性;通过组织成员开放式讨论,改变师生传统的思维模式;通过投入-实施-反馈-修正-再投入形成教学改革良性循环。学习型组织在教学改革中的成效,最终需要具备系统化思维的领导者来实现。     

The optimal consumption function in a Brownian model of accumulation Part A: The consumption function as solution of a boundary value problem

We consider a neo-classical model of optimal economic growth with c.r.r.a. utility in which the traditional deterministic trends representing population growth, technological progress, depreciation and impatience are replaced by Brownian motions with drift. When transformed to ‘intensive’ units, this is equivalent to a stochastic model of optimal saving with diminishing returns to capital. For the intensive model, we give sufficient conditions for optimality of a consumption plan (open-loop control) comprising a finite welfare condition, a martingale condition for shadow prices and a transversality condition as t→∞. We then replace these by conditions for optimality of a plan generated by a consumption function (closed-loop control), i.e. a function expressing log-consumption as a time-invariant, deterministic function of log-capital . Making use of the exponential martingale formula we replace the martingale condition by a non-linear, non-autonomous second-order o.d.e. which an optimal consumption function must satisfy; this has the form , where . Economic considerations suggest certain limiting values which and should satisfy as , thus defining a two-point boundary value problem (b.v.p.) — or rather, a family of problems, depending on the values of parameters. We prove two theorems showing that a consumption function which solves the appropriate b.v.p. generates an optimal plan. Proofs that a unique solution of each b.v.p. exists are given in a separate paper (Part B).