A Note on Dynamic Roy's Identity
Theoretical Economics Letters, 2014, 4, 513-516
5 Pages Posted: 22 Feb 2016 Last revised: 13 Jul 2018
Date Written: June 13, 2014
Abstract
Roy's identity is a useful tool in theoretical and empirical studies of static consumption problems. Most dynamic consumer problems, however, concentrate on obtaining the optimal consumption path derived from the Euler equation. In this note we assumes that the consumer makes decision in a two-stage process. In the dynamic stage, two forms of Roy's identity is derived. The first form relates the asset holding in each period to the marginal utility of interest rate and the marginal utility of income. The second form resemble the classic Roy's identity in the static analysis.
Keywords: Roy's identity, Inter-temporal consumption
JEL Classification: D11, E21
Suggested Citation: Suggested Citation