Aggregate dividends and consumption smoothing

Winifred Huang-Meier; Mark C. Freeman

doi:10.1016/j.irfa.2015.08.008

Aggregate dividends and consumption smoothing

Winifred Huang-Meier^*, Mark C. Freeman

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

Abstract

We show that net equity payouts from the corporate sector play a crucial role in helping individuals manage their consumption path across the business cycle. In particular, we show that, as investors' desire to smooth consumption increases, optimal aggregate dividends become both more volatile and more counter-cyclical to help counterbalance pro-cyclical labor income. These findings are robust to whether or not agency conflicts exist in the economy.

Original language	English
Journal	International Review of Financial Analysis
Volume	In press
Early online date	14 Aug 2015
DOIs	https://doi.org/10.1016/j.irfa.2015.08.008
Publication status	Published - 2015

Keywords

aggregate dividend policy
consumption smoothing
dynamic stochastic general equilibrium models
habit formation

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10.1016/j.irfa.2015.08.008

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title = "Aggregate dividends and consumption smoothing",

abstract = "We show that net equity payouts from the corporate sector play a crucial role in helping individuals manage their consumption path across the business cycle. In particular, we show that, as investors' desire to smooth consumption increases, optimal aggregate dividends become both more volatile and more counter-cyclical to help counterbalance pro-cyclical labor income. These findings are robust to whether or not agency conflicts exist in the economy.",

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AB - We show that net equity payouts from the corporate sector play a crucial role in helping individuals manage their consumption path across the business cycle. In particular, we show that, as investors' desire to smooth consumption increases, optimal aggregate dividends become both more volatile and more counter-cyclical to help counterbalance pro-cyclical labor income. These findings are robust to whether or not agency conflicts exist in the economy.

KW - aggregate dividend policy

KW - consumption smoothing

KW - dynamic stochastic general equilibrium models

KW - habit formation

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U2 - 10.1016/j.irfa.2015.08.008

DO - 10.1016/j.irfa.2015.08.008

M3 - Article

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SN - 1057-5219

VL - In press

JO - International Review of Financial Analysis

JF - International Review of Financial Analysis

ER -

Aggregate dividends and consumption smoothing

Abstract

Keywords

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