Long-Run Risk Unwrapped: An Analytical Expression of the Wealth-Consumption Ratio

27 Pages Posted: 1 Dec 2023

See all articles by Ella Patelli

Ella Patelli

UBC - Sauder School of Business

Gabrielle Trudeau

HEC Montreal - Department of Decision Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: November 21, 2023

Abstract

We derive an analytical expression for the wealth-consumption ratio (wcr) in a representative agent model with recursive utility over consumption. Our expression assumes that the wcr is exponential affine in expected consumption growth and sets constraints on the mean-reversion of consumption growth. Our analytical expression for the wcr is nearly identical to the exact numerical solution.

Keywords: wealth-consumption ratio, analytical solution, long-run risk

JEL Classification: D81, E30, G12

Suggested Citation

Patelli, Ella and Trudeau, Gabrielle, Long-Run Risk Unwrapped: An Analytical Expression of the Wealth-Consumption Ratio (November 21, 2023). Available at SSRN: https://ssrn.com/abstract=4640669 or http://dx.doi.org/10.2139/ssrn.4640669

Ella Patelli (Contact Author)

UBC - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Gabrielle Trudeau

HEC Montreal - Department of Decision Sciences ( email )

3000 Côte-Sainte-Catherine Road
Montreal, QC H2S1L4
Canada

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