A BEJM Contributions article.

Abstract

Credit-constrained households must use savings both to smooth consumption and to finance productive investments. This non-separability between consumption and production decisions is ignored in the standard intertemporal buffer-stock consumption model where income growth is exogenous. This paper develops an intertemporal model of household consumption and investment in the presence of credit constraints and income uncertainty. Investment options are modelled as irreversible, indivisible, and non-stationary, allowing for endogenous income growth. The resulting behaviour is markedly different from that of the standard buffer-stock model.

Submitted: February 12, 2003 · Accepted: May 16, 2005 · Published: June 5, 2005

Originally published in Contributions to Macroeconomics.

Recommended Citation

Malchow-Møller, Nikolaj and Thorsen, Bo Jellesmark (2005) "The Buffer-Stock Consumption Model with Endogenous Income Shifts," Contributions to Macroeconomics: Vol. 5 : Iss. 1, Article 6.
Available at: http://www.bepress.com/bejm/contributions/vol5/iss1/art6