Saving rates and portfolio choice with subsistence consumption
- We analytically show that a common across rich/poor individuals Stone-Geary utility function with subsistence consumption in the context of a simple two-asset portfolio-choice model is capable of qualitatively and quantitatively explaining: (i) the higher saving rates of the rich, (ii) the higher fraction of personal wealth held in risky assets by the rich, and (iii) the higher volatility of consumption of the wealthier. On the contrary, time-variant “keeping-up-with-the-Joneses” weighted average consumption which plays the role of moving benchmark subsistence consumption gives the same portfolio composition and saving rates across the rich and the poor, failing to reconcile the model with what micro data say. JEL Classification: G11, D91, E21, D81, D14, D11
| Author: | Carolina Achury, Sylwia Hubar, Christos Koulovatianos |
|---|---|
| URN: | urn:nbn:de:hebis:30-92944 |
| Parent Title (German): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2011,06 |
| Series (Serial Number): | CFS working paper series (2011, 06) |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2011 |
| Year of first Publication: | 2011 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2011/03/08 |
| Tag: | Stone-Geary preferences; elasticity of intertemporal substitution; household portfolios; two-asset portfolio; wealth inequality |
| Issue: | Version January 26, 2011 |
| Page Number: | 51 |
| HeBIS-PPN: | 234640871 |
| Institutes: | Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Deutsches Urheberrecht |
