Solving the income fluctuation problem with unbounded rewards

B-Tier
Journal: Journal of Economic Dynamics and Control
Year: 2014
Volume: 45
Issue: C
Pages: 353-365

Authors (2)

Li, Huiyu (Federal Reserve Bank of San Fr...) Stachurski, John (not in RePEc)

Score contribution per author:

1.005 = (α=2.01 / 2 authors) × 1.0x B-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

This paper studies the income fluctuation problem without imposing bounds on utility, assets, income or consumption. We prove that the Coleman operator is a contraction mapping over the natural class of candidate consumption policies when endowed with a metric that evaluates consumption differences in terms of marginal utility. We show that this metric is complete, and that the fixed point of the operator coincides with the unique optimal policy. As a consequence, even in this unbounded setting, policy function iteration always converges to the optimal policy at a geometric rate.

Technical Details

RePEc Handle
repec:eee:dyncon:v:45:y:2014:i:c:p:353-365
Journal Field
Macro
Author Count
2
Added to Database
2026-01-25