In this paper, based on dynamic programming we investigate the military spending, trade and wealth accumulation in a stochastic endogenous growth model. For the CobbDauglas utility function, explicit solutions of the optimal problem in the home country are obtained, and the optimal consumptions of domestic goods and foreign goods, the share of domestic capital stock and foreign bond holdings ar...

Intertemporal correlation aversion is an intuitive concept indicating whether an individual prefers lotteries concerning consumption at different moments in time to be positively or negatively correlated. I show that the difference between the coefficient of relative risk aversion and the inverse of the intertemporal elasticity of substitution is related, in a simple way, to the index of intert...

Making intertemporal choices (choosing between rewards available at different points in time) requires determining and comparing the subjective values of available rewards. Several studies have found converging evidence identifying the neural systems that encode subjective value in intertemporal choice. However, the neural mechanisms responsible for the process that produces intertemporal decis...

The objective of this note is to understand the implications for consumption and portfolio choice of the separation of an investor’s risk aversion and elasticity of intertemporal substitution that is made possible by recursive utility, in contrast to expected utility where the two are dictated by the same parameter. In particular, we study whether the optimal dynamic consumption and portfolio d...

The Loanable funds theory Hypotheses: Individuals care only about real variables (output gains or losses, purchasing-power gains or losses). The marginal productivity of capital assets (MPK) is given and determined by the technical characteristics of the productive assets. It represents the gain, in terms of output, obtained by increasing the capacity of production by one additional capital ass...

Intertemporal decision-making is a fundamental issue in the study of individual behavior. In this paper I review the economic approach to intertemporal decision-making by considering the behavioral assumptions that are implied by the Exponential and the Hyperbolic discounting models. Both approaches focus on how people evaluate utility ‡ows over time. However, there is evidence showing that the...

Abstract This paper investigates a multivariate, dynamic, continuous-time optimal consumption and portfolio allocation problem when the investor faces recursive utilities. The economy we are considering is described through both diffusion discontinuities in dynamics. We derive an approximated closed-form solution to rules by exploiting standard dynamic programming techniques. Our findings manif...

An Euler equation is a difference or differential equation that is an intertemporal first-order condition for a dynamic choice problem. It describes the evolution of economic variables along an optimal path. It is a necessary but not sufficient condition for a candidate optimal path, and so is useful for partially characterizing the theoretical implications of a range of models for dynamic beha...

The aim of this article is to describe the evolution of a very dynamic theory: the theory of intertemporal choice. I present the first economic thinking on intertemporal decision-making, and expose how it resulted in Samuelson’s famous discounted utility model; then I describe how and why discounted utility became the standard approach to intertemporal choice in economics through the alleged no...