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The relevance of the life-cycle framework, therefore, builds on intertemporal allocation of resources between the present and an uncertain future with the goal of maximizing utility. Rational individuals take sequential decisions to achieve a coherent and ‘stable’ future goal using currently available information.
The assumption of constant investment opportunities can be relaxed. This requires a model for how ,, change over time. An interest rate model could be added and would lead to a portfolio containing bonds of different maturities. Some authors have added a stochastic volatility model of stock market returns.
Furthermore this theory implies that consumption is smoothed out relative to a person's income which is the reason economists set consumption proportional to potential income rather than actual income. Attempts to test the life-cycle model against real world data have met with mixed success.
Other economists focused more on theory in their business cycle analysis. Most business cycle theories focused on a single factor, [9] such as monetary policy or the impact of weather on the largely agricultural economies of the time. [8] Although business cycle theory was well established by the 1920s, work by theorists such as Dennis ...
Robert Hall was the first to derive the effects of rational expectations for consumption. His theory states that if Milton Friedman’s permanent income hypothesis is correct, which in short says current income should be viewed as the sum of permanent income and transitory income and that consumption depends primarily on permanent income, and if consumers have rational expectations, then any ...
While the life cycle hypothesis predicts the income and the consumption patterns of the elderly population, a series of research papers published in the 2000s highlighted the role of other factors in making the elderly class of people among the income-poor alone, and not people who are both income and consumption-poor.
Yes. So the way we think about betas up Rob, and definitionally, I think issuers or banks look at it slightly differently. We look at the start of the rate up cycle to the start of the downward cycle.
The overlapping generations (OLG) model is one of the dominating frameworks of analysis in the study of macroeconomic dynamics and economic growth.In contrast to the Ramsey–Cass–Koopmans neoclassical growth model in which individuals are infinitely-lived, in the OLG model individuals live a finite length of time, long enough to overlap with at least one period of another agent's life.