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Duality and liquidity constraints under uncertainty

By Vassilis Hajivassiliou and Yannis Ioannides

Abstract

A dual approach to the problem of maximizing lifetime utility subject to liquidity constraints in discrete time leads to a dual dynamic programming formulation which links commodity and asset demand theory under uncertainty with Frisch demand theory. We establish the existence of a threshold level of wealth, that characterizes constrained behavior. We explore the power of the dual approach for empirical work

Topics: HB Economic Theory
Publisher: Elsevier
Year: 1996
DOI identifier: 10.1016/0165-1889(95)00894-2
OAI identifier: oai:eprints.lse.ac.uk:4789
Provided by: LSE Research Online
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