Topic: Consumer Durables Adjustment under Ambiguity Aversion

Speaker: Luo Yulei, Professor, HKU

Time: April 2, 2024, 14:30

Venue: Room 222

Abstract: In this paper, we develop a stochastic consumer durables model in which individual consumers face non-convex adjustment costs, idiosyncratic income uncertainty, and Knightian uncertainty due to ambiguity aversion. We show the optimality and uniqueness of the solution to this robust impulse control problem, and solve the model numerically. We then quantitatively examine the implications of Knightian uncertainty on the (S,s)-type intermittent and lumpy durables adjustments, the cross-sectional distribution of durables holdings, and the consumers' welfare. Finally, we compare the implications of Knightian uncertainty with that of fundamental uncertainty.

Guest Bio: Luo Yulei, a professor of economics at the School of Business, the University of Hong Kong, received his PhD from Princeton University. His main research areas are macroeconomics, information economics, monetary theory and policy. He has published more than 20 papers in top or first-tier international journals such as Management Science, Economic Journal, Journal of International Economics, Journal of European Economic Association, American Economic Jouranl: Macroeconomics, Journal of Economic Theory, Review of Economic Dynamics, and Journal of Economic Dynamics and Control.