The Markov Consumption Problem
University at Albany, SUNY - Department of Economics
April 12, 2010
The paper derives the solution to a simple stochastic continuous-time dynamic control problem in which a consumer determines consumption and saving while moving between employment and unemployment according to a Markov process. The results differ from the permanent income hypothesis and some of Hall's 1978 results based on auto-regressive income shocks.
Number of Pages in PDF File: 29
Keywords: Consumption, Saving, Markov Process, Bankruptcy
JEL Classification: C61, D91, E21, J64working papers series
Date posted: April 16, 2010
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