Optimal Saving Under Poisson Uncertainty
Posted: 3 Sep 2005
This paper studies optimal saving and investment behaviour of a household that can either invest in a riskless or a risky saving technology when risk results from a Poisson process. The focus is on behaviour of households in a general equilibrium setup. Poisson processes are introduced since they allow us to understand and model endogenous cycles jointly with long-run growth. It turns out that a very simple, intuitive and tractable characterization of equilibrium is possible.
Keywords: Optimal saving, Poisson uncertainty, continuous time
JEL Classification: C61, O33, O41
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