On the stability of the CRRA utility under high degrees of uncertainty

Trino Ñíguez Grau, Ivan Paya (), David Peel and Javier Perote

No 615773, Working Papers from Lancaster University Management School, Economics Department

Abstract: Economic growth models under uncertainty and rational agents with CRRA utility have been shown to provide quite fragile explanations of consumers.choice as equlib- rium comsumption paths (expected utility) are drastically dependant on distributional assumptions. We show that assuming a SNP distribution for random consumption provides stability to general equilibrium models as expected utility exists for any value of the marginal rate of substitution over time.

Keywords: Bayesian learning; Rational expectations; Semi-nonparametric distribu-tions. (search for similar items in EconPapers)
Date: 2011
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