Hand-to-Mouth Consumers and Asset Prices - Archive ouverte HAL Access content directly
Journal Articles European Economic Review Year : 1992

Hand-to-Mouth Consumers and Asset Prices



Many consumers seem to lead a hand-to-mouth existence: they simply consume their current income. This may be the result of unsophisticated behavior (non-optimizing, or ‘rule-of-thumb’ consumers), or the reflection of an inability to trade in asset markets due to infinite transactions costs. The objective of this paper is to explore, in a very simple model, the implications for equilibrium asset prices of the presence of hand-to-mouth consumers. I will establish that allowing for the existence of hand-to-mouth consumers contributes, under plausible assumptions, to the resolution of the equity premium puzzle’ and of the riskfree rate puzzle. As a consequence, the same phenomenon - hand-to-mouth consumption - which Campbell and Mankiw (1989) have shown to be crucial to the description of the time-series behavior of aggregate consumption has the potential of explaining asset market data (...).
Not file

Dates and versions

hal-03393469 , version 1 (21-10-2021)


  • HAL Id : hal-03393469 , version 1
  • SCIENCESPO : 2441/8604


Philippe Weil. Hand-to-Mouth Consumers and Asset Prices. European Economic Review, 1992, 36 (2-3), pp.575 - 583. ⟨hal-03393469⟩


16 View
0 Download


Gmail Facebook Twitter LinkedIn More