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Smooth transition in aggregate consumption

By Yiuman Tse and Tatyana Zabotina

Abstract

The STAR model is used to characterize the time series of aggregate consumption. It makes smooth transition from one optimal level to another, as heterogeneous individuals reach their optimal revision points over time. These results suggest that consumption adjustment costs and heterogeneity among investors are responsible for the empirical failure of the consumption-based CAPM.

DOI identifier: 10.1080/13504850110094478
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