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Original Articles

Smooth transition in aggregate consumption

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Pages 415-418 | Published online: 06 Oct 2010
 

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.

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