Learning the Optimal Buffer-Stock Consumption Rule of Carroll

24 Pages Posted: 12 Mar 2012 Last revised: 28 Aug 2014

See all articles by Murat Yildizoglu

Murat Yildizoglu

University of Angers - Groupe de Recherche en Économie Théorique et Appliquée (GREThA)

Marc-Alexandre Senegas

University of Bordeaux

Isabelle Salle

Government of Canada - Bank of Canada; University of Amsterdam; Tinbergen Institute

Martin Zumpe

University of Angers - Groupe de Recherche en Économie Théorique et Appliquée (GREThA)

Date Written: March 10, 2012

Abstract

This article questions the rather pessimistic conclusions of Allen and Carroll (2001) about the ability of consumer to learn the optimal buffer-stock based consumption rule. To this aim, we develop an agent based model where alternative learning schemes can be compared in terms of the consumption behaviour that they yield. We show that neither purely adaptive learning, nor social learning based on imitation can ensure satisfactory consumption behaviours. By contrast, if the agents can form adaptive expectations, based on an evolving individual mental model, their behaviour becomes much more interesting in terms of its regularity, and its ability to improve performance (which is as a clear manifestation of learning). Our results indicate that assumptions on bounded rationality, and on adaptive expectations are perfectly compatible with sound and realistic economic behaviour, which, in some cases, can even converge to the optimal solution. This framework may therefore be used to develop macroeconomic models with adaptive dynamics.

Keywords: Consumption decisions, Learning, Expectations, Adaptive behaviour, Computational economics

JEL Classification: E21, D91, D83, D84

Suggested Citation

Yildizoglu, Murat and Senegas, Marc-Alexandre and Salle, Isabelle and Zumpe, Martin, Learning the Optimal Buffer-Stock Consumption Rule of Carroll (March 10, 2012). Macroeconomic Dynamics, Vol. 18, No. 4, 2014, Available at SSRN: https://ssrn.com/abstract=2019511 or http://dx.doi.org/10.2139/ssrn.2019511

Murat Yildizoglu (Contact Author)

University of Angers - Groupe de Recherche en Économie Théorique et Appliquée (GREThA) ( email )

Avenue Léon Duguit
Aveneu Duguit
Pessac, 33 608
France

Marc-Alexandre Senegas

University of Bordeaux ( email )

Avenue Léon Duguit
Bordeaux, 33000
France

Isabelle Salle

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

University of Amsterdam

Spui 21
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Martin Zumpe

University of Angers - Groupe de Recherche en Économie Théorique et Appliquée (GREThA) ( email )

Avenue Léon Duguit
Aveneu Duguit
Pessac, 33 608
France

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