An Approximate Consumption Function

43 Pages Posted: 28 Aug 2008 Last revised: 13 Jan 2014

See all articles by Mario Padula

Mario Padula

University "Ca' Foscari" of Venice; CSEF

Date Written: August 27, 2008

Abstract

This paper proposes an approximation to the consumption function in the buffer-stock model. The approximation is based on the analytic properties of the consumption function in the buffer-stock model. In such model, the consumption function is increasing and concave and its derivative is bounded from above and below. We compare the approximation with the consumption function obtained using the endogenous grid point algorithm and show that using the former or the latter for estimating the Euler equation leads to very similar results.

Keywords: Buffer stock model of saving, Computational methods, Approximation methods and estimation

JEL Classification: C63, D12, E21

Suggested Citation

Padula, Mario, An Approximate Consumption Function (August 27, 2008). University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 24/2008. Available at SSRN: https://ssrn.com/abstract=1259768 or http://dx.doi.org/10.2139/ssrn.1259768

Mario Padula (Contact Author)

University "Ca' Foscari" of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy
+390412349181 (Phone)
+390412349176 (Fax)

CSEF

Via Don Melillo I
Fisciano, Salerno, 84084
Italy

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