Asymptotic Linearity of Consumption Functions and Computational Efficiency
General Economics
2021-10-26 v2 Economics
Abstract
We prove that the consumption functions in optimal savings problems are asymptotically linear if the marginal utility is regularly varying. We also analytically characterize the asymptotic marginal propensities to consume (MPCs) out of wealth. Our results are useful for obtaining good initial guesses when numerically computing consumption functions, and provide a theoretical justification for linearly extrapolating consumption functions outside the grid.
Cite
@article{arxiv.2002.09108,
title = {Asymptotic Linearity of Consumption Functions and Computational Efficiency},
author = {Qingyin Ma and Alexis Akira Toda},
journal= {arXiv preprint arXiv:2002.09108},
year = {2021}
}