1/11/2024 0 Comments Power utility functionA meta-analysis of 169 published studies reports a mean elasticity of 0.5, but also substantial differences across countries. From Kahneman and Tversky (1979), a utility function (or value function). Part of the difficulty stems from the fact that microeconomic studies come to different conclusions than macroeconomic studies, which use aggregate data. imposed, power and exponential S-shaped utilities can lead to prefer fair sym. If the elasticity is low, the consumption smoothing motive is very strong and because of this consumers will save a little and consume a lot if the real interest rate is high.Įmpirical estimates of the elasticity vary. The two ways generally yield the same definition. A special form of the power utility function such as U. ![]() The second way is to explicitly derive it as an elasticity. Risk aversion is indicated by a utility function that shows decreasing marginal utility as the. If the elasticity is high, then large changes in consumption are not very costly to consumers and, as a result, if the real interest rate is high, they will save a large portion of their income. The first way is to define it abstractly as a function derived from the utility function, then interpret it as an elasticity. The regional utility function at any point in. In the Ramsey growth model, the elasticity of intertemporal substitution determines the speed of adjustment to the steady state and the behavior of the saving rate during the transition. In WITCH, a social planner maximises the sum of regional discounted utility W W of each coalition, clt c l t. A high theta implies an insensitive consumption growth. For theta equal to 1, the growth rate of consumption responds one for one to changes in the real interest rate. ![]() In general, a low value of theta (high intertemporal elasticity) means that consumption growth is very sensitive to changes in the real interest rate.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |