Time-Additive Consumption-Wealth Utility
30 Pages Posted: 19 Aug 2011 Last revised: 26 Jan 2012
Date Written: August 18, 2011
This paper presents a new model of time-additive consumption-wealth utility. Like recursive utility, this model separates the roles of risk aversion and the intertemporal elasticity of consumption allowing it to be calibrated to a wider variety of data. Indeed, the observed equity premium and low interest rate – the joint puzzle of the equity premium puzzle – can be explained within this model without requiring a large relative risk aversion.
Keywords: intertemporal models, non-standard utility, portfolio models, consumption models
JEL Classification: D11, D91, G11, G12
Suggested Citation: Suggested Citation