Spring 2021

Risk

Time

  • Take-Home Exam #4 (Due at noon on Wednesday, April 7): (Part A) Apply the Symmetry Theorem to Long and Plosser (1983) “Real Business Cycles” (in the JPE). You do not need to be formal. Just point out what the symmetries are (there is more than one dimension’s worth of symmetries) so I can understand what you are pointing to. (Part B) Use arguments based on Taylor expansions to derive the continuous-time stochastic Bellman equation with one state variable following a diffusion (and the only other component to the state variable vector being time). The point is to see how you can get there through another path than L’Hopital’s rule.

Reading Assignments

Risk: One- and Two-Period Models

  • Kimball, M., 1990: ``Precautionary Saving in the Small and in the

    Large,'' Econometrica (January), 53--73.

  • Kimball, M., 1993: ``Standard Risk Aversion,'' Econometrica

    (May), 589--611.

  • Elmendorf, E. and Kimball, M., 2000: ``Taxation of Labor Income

    and the Demand for Risky Assets,'' International Economic

    Review, 41 (August), 801--832.

  • Kimball, M. and Weil, P., 2009: ``Precautionary Saving and Consumption Smoothing across Time and Possibilities,'' Journal of Money, Credit and Banking, 41 (March-April), pp. 245-284

  • Kimball, M., 1989: ``The Effect of Demand Uncertainty on a

    Precommitted Monopoly Price,'' Economics Letters, {\bf 30}

    (September), 1--5.

  • Gollier, C., and Kimball, M., 2018.  ``New Methods in the Classical Economics of Uncertainty: Comparing Risks," Geneva Risk and Insurance Review, 43(1), 5-23.

  • Gollier, C., and Kimball, M., 2018.  "Toward a Systematic Approach to the Economic Effects of Uncertainty:  Characterizing Utility Functions," Journal of Risk and Insurance, 85(2) (May), 397-430.

Time: Multiperiod Models

  • Kimball, M., 1988: ``Farmers' Cooperatives as Behavior Towards

    Risk,'' American Economic Review, 78 (March), 224--232.

  • Kimball, M. and Mankiw, N. G., 1989: ``Precautionary Saving and

    the Timing of Taxes,'' Journal of Political Economy, 97

    (August), 863--879.

  • Carroll, C. and Kimball, M., 1996: ``On the Concavity of the

    Consumption Function,'' Econometrica, 64 (July), 981--992.

  • Kimball, M., 1990: “Precautionary Saving and the Marginal Propensity to Consume.” Get it at this link.

  • Joe Lupton’s dissertation using capitalization of the habit burden

  • Laurie Pounder’s “Life-Cycle Consumption Examined”: Part 1 of applying the Merton model (with its scale symmetry), plus the capitalization symmetry to Health and Retirement Study data.

  • Laurie Pounder’s “High and Low Savers? Circumstances, Patience and Cognition”: Part 2 of applying the Merton model (with its scale symmetry), plus the capitalization symmetry to Health and Retirement Study data—this time as a benchmark from which reality departs.

  • On Perturbation Methods: Kimball, M., “The Effect of Uncertainty on Optimal Control Models in the Neighbourhood of a Steady State,” Geneva Risk and Insurance Review 2014 Mar;39(1):2-39. (Link to ungated PubMed version.)