Duality and liquidity constraints under uncertainty
Hajivassiliou, V.
& Ioannides, Y.
(1996).
Duality and liquidity constraints under uncertainty.
Journal of Economic Dynamics and Control,
20(6-7), 1177-1192.
https://doi.org/10.1016/0165-1889(95)00894-2
& Ioannides, Y.
(1996).
Duality and liquidity constraints under uncertainty.
Journal of Economic Dynamics and Control,
20(6-7), 1177-1192.
https://doi.org/10.1016/0165-1889(95)00894-2
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.