This paper provides the closed form solution for the standard model of endogenous growth when consumers have present-biased preferences and make time-inconsistent savings plans, which they revise continuously. It is shown that long-run growth is not necessarily lower under present-biased...

Kimball (1990a,b) established that income risk increases the marginal propensity to consume if and only if absolute prudence decreases. We characterize decreasing and increasing multivariate prudence and show that a multidimensional risk increases the marginal propensity to consume if and only...

In this paper, we consider a finite-horizon model with the time-additive utility and the time varying discount rate. With the assumption of the concavity of absolute risk tolerance, the concavity of the consumption function has been proved. This result significantly broadens the conclusion of...

Based on the HRS, I find strong dissaving of nursing home residents and a significant overestimation of U.S. saving rates from age 75 onwards if nursing home residents are excluded as in most micro datasets.

This letter develops a set of simple conditions under which an individual is willing to save an extra amount of money due to the presence of ambiguity concerning his second period wealth. This extra precautionary saving motive is naturally associated with the notion of ambiguity prudence.

This paper examines sustainability of an inflation-targeting policy regime in terms of sustainable equilibrium using a canonical model in the recent literature. Overly flexible inflation targeting is not sustainable. Strict inflation targeting is sustainable only when shock persistence is high...

With moral hazard and anonymous asset trade, first-order conditions need not characterize effort and portfolio choices. The standard procedure for establishing validity of the first-order approach in economies with one hidden asset is not fruitful when multiple assets are hidden.

Recent work by Laibson (1997) identifies that individuals’ time discount factors evolve over time. This leads to a time-inconsistency problem in which savings are distorted. This paper studies the long-run effects of inflation in the presence of a time-inconsistency problem.

Hyperbolic discounting with naiveté is widely believed to provide a better explanation than exponential discounting of why people borrow so much and why they wait so long to save for retirement. We reach a different set of conclusions. We show that if financial planning is enriched to include...