Calibration and Computation of Household Portfolio Models

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  • 1 January 2001
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      • Published in RePEc
Abstract
This paper discusses calibration and numerical solution of a wide range of household portfolio models. We illustrate the main conceptual, technical, and computational issues that arise in the context of household portfolio choice, and explore the implications of alternative modeling choices. We consider both small- and large-scale optimization models under finite and infinite horizons and under two types of earnings shocks, permanent and transitory. The role of alternative preference specifications, of borrowing constraints, and of predictability of excess returns on stocks is also discussed. In the process, we explore enduring portfolio puzzles and identify new ones to be resolved in future research. These include puzzles relating to participation in the stock market and to portfolio shares conditional on participation.
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