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Title:Saving rates and portfolio choice with subsistence consumption PDF Logo
Authors:Achury, Carolina
Hubar, Sylwia
Koulovatianos, Christos
Issue Date:2011
Series/Report no.:CFS Working Paper 2011/06
Abstract: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.
Subjects:Elasticity of Intertemporal Substitution
Stone-Geary Preferences
Two-asset Portfolio
Household Portfolios
Wealth Inequality
Controlled Diffusion
Persistent Identifier of the first edition:urn:nbn:de:hebis:30-92944
Document Type:Working Paper
Appears in Collections:CFS Working Paper Series, Universität Frankfurt a. M.

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