Calibration and Computation of Household Portfolio Models

University of Cyprus Department of Economics Working Paper No. 00-04

55 Pages Posted: 16 Oct 2000

See all articles by Alexander Michaelides

Alexander Michaelides

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Michael Haliassos

Goethe University Frankfurt - House of Finance; Goethe University Frankfurt - Faculty of Economics and Business Administration; CEPR; NETSPAR

Date Written: September 8, 2000

Abstract

This paper discusses calibration and numerical solution of a wide range of household portfolio models. We illustrate the main conceptual, technical, and computational issues that arise in the context of household portfolio choice, and explore the implications of alternative modeling choices. We consider both small- and large-scale optimization models under finite and infinite horizons and under two types of earnings shocks, permanent and transitory. The role of alternative preference specifications, of borrowing constraints, and of predictability of excess returns on stocks is also discussed. In the process, we explore enduring portfolio puzzles and identify new ones to be resolved in future research. These include puzzles relating to participation in the stock market and to portfolio shares conditional on participation.

Keywords: Precautionary saving, portfolio choice, liquidity constraints, preference specifications, buffer stock saving, calibration, computational methods

JEL Classification: G11, E2

Suggested Citation

Michaelides, Alexander and Haliassos, Michael, Calibration and Computation of Household Portfolio Models (September 8, 2000). University of Cyprus Department of Economics Working Paper No. 00-04. Available at SSRN: https://ssrn.com/abstract=241348 or http://dx.doi.org/10.2139/ssrn.241348

Alexander Michaelides

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Michael Haliassos (Contact Author)

Goethe University Frankfurt - House of Finance

Theodor-W.-Adorno-Platz 3
PF H32
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
PF H32
Frankfurt am Main, D-60323
Germany

CEPR

London
United Kingdom

NETSPAR ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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