Claudio Campanale (Università di Torino)

"Consumption  insurance with Epstein-Zin preferences"

2 October 2017, 12:45 pm

abstract

"Partial insurance is a characteristic feature of Standard Incomplete Market(SIM) models. In a recent paper Kaplan and Violante (2010) test a life-cycle version of the model against insurance coefficients computed from data and show that the model falls short of predicting the correct degree of smoothing of permanent shocks on average and over the life-cycle. In the present paper we modify the basic version of the model to allow for Epstein-Zin preferences and show that the degree of flexibility permitted by that preference specifications enables the model to substantially improve the fit of average, permanent shock, insurance coefficients and somewhat improve their life-cycle patterns."