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dc.contributor.authorAase, Knut K.
dc.date.accessioned2014-08-20T06:42:25Z
dc.date.available2014-08-20T06:42:25Z
dc.date.issued2014-05
dc.identifier.urihttp://hdl.handle.net/11250/217621
dc.description.abstractWe analyze optimal consumption, including pensions, during the life time of a consumer using the life cycle model, when the consumer has recursive utility. The model framework is that of continuous-time with diffusion driven uncertainty. The relationship between substitution of consumption and risk aversion is highlighted, and clarified in the context of the life cycle model. We find the optimal consumption in closed form, and illustrate that the recursive utility consumer may prefer to smooth consumption shocks across time and states of the world. This agent consumes and invests to mitigate shocks to the economy, in situations where the conventional consumer is just myopic. This has consequences for what products the financial industry may choose to offer. The resulting model can be used to explain empirical puzzles for aggregates, indicating a plausible choice for the parameters of the utility function, for for the 'average' consumer in the context of life cycle model.nb_NO
dc.language.isoengnb_NO
dc.publisherFORnb_NO
dc.relation.ispartofseriesDiscussion papers;19/14
dc.subjectVDP::Samfunnsvitenskap: 200::Økonomi: 210::Samfunnsøkonomi: 212nb_NO
dc.subjectthe life cycle modelnb_NO
dc.subjectrecursive utilitynb_NO
dc.subjectconsumption smoothingnb_NO
dc.subjectconsumption puzzlesnb_NO
dc.subjectthe stochastic maximum principlenb_NO
dc.subjectthe equity premium puzzlenb_NO
dc.subjectpension and life insurancenb_NO
dc.titleThe Life Cycle Model with Recursive Utility: New insights on optimal consumptionnb_NO
dc.typeWorking papernb_NO


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