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Comparison of Optimal and Empirical ...

Liu, Zhuoran.

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Comparison of Optimal and Empirical Consumption, Portfolio Selection and Labour-Leisure Choice in Australia.

Record Type:	Electronic resources : Monograph/item
Title/Author:	Comparison of Optimal and Empirical Consumption, Portfolio Selection and Labour-Leisure Choice in Australia./
Author:	Liu, Zhuoran.
Published:	Ann Arbor : ProQuest Dissertations & Theses, : 2023,
Description:	244 p.
Notes:	Source: Dissertations Abstracts International, Volume: 85-04, Section: A.
Contained By:	Dissertations Abstracts International85-04A.
Subject:	Age groups. -
Online resource:	https://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=30615746
ISBN:	9798380470285

Comparison of Optimal and Empirical Consumption, Portfolio Selection and Labour-Leisure Choice in Australia.
Liu, Zhuoran.

Comparison of Optimal and Empirical Consumption, Portfolio Selection and Labour-Leisure Choice in Australia. - Ann Arbor : ProQuest Dissertations & Theses, 2023 - 244 p.

Source: Dissertations Abstracts International, Volume: 85-04, Section: A.

Thesis (Ph.D.)--The Australian National University (Australia), 2023.

This item must not be sold to any third party vendors.

This thesis builds a rich life-cycle model that considers optimal individual decisions on consumption, leisure and portfolio choices under the Australian social security framework. More specifically, we consider the Australia-specific policy details relating to individual income tax, the superannuation system, and the means-tested Age Pension in the model. Then the model is solved with the Endogenous Grid-point Method (EGM). We handle the model parsimoniously and solve the optimal individual decisions for all possible scenarios. The corner solutions raised by the non-concave regions of the value function, non-differentiable income tax function, and borrowing constraint of the decision variables are also discussed in detail. For example, the Upper Envelope Algorithm is applied when there are multiple local optimal solutions. As for the non-differentiability of the function, we simplify the problem to be a discrete-continuous problem and solve for the optimal decisions with the Discrete-Continuous generalization of the Endogenous Grid-point Method (DC-EGM). We gain enormously from the EGM solutions in terms of robustness and computing speed, compared to the traditional Value Function Iteration (VFI) method.Moreover, we compare this model with empirical data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey. We first calculate the data variables from the HILDA Survey and discuss their differences with the model variables. This is also in preparation for the later model estimation. Secondly, we verify the model mechanism by comparing the model outputs and empirical data observations for several policy experiments. From the data visualisation and regression results, we find that the interactions between the policy changes and the individual decisions are consistent with the model implication. Therefore, we conclude that the model is appropriate in terms of predicting the directional change of individuals' decisions with respect to different governmental policy changes.Finally, we estimate the model with the data variables calculated from HILDA Survey and obtain an Australia-specific set of parameters. We contribute to the literature by estimating the age-varying endogenous parameters in the model in the Australian context. We also explicitly show that compared to constant parameters, the age-varying setting improves the goodness of fit significantly. In addition, the optimal model outputs fit well with the empirical data. However, the model outputs and the HILDA data do not match perfectly, which suggests that the estimation results can be further improved by considering a more complex age-varying function form of the model parameters. Another challenge is that the parameters are defined specifically in our model with the CobbDouglas utility function. The individual preference parameters, such as the coefficient of relative risk aversion, are interpreted differently than in other studies. In future research, it could be valuable to investigate the same individual parameters under different utility assumptions and evaluate the differences between the parameter estimation results.

ISBN: 9798380470285Subjects--Topical Terms:

2081388
Age groups.

Comparison of Optimal and Empirical Consumption, Portfolio Selection and Labour-Leisure Choice in Australia.
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520 $a This thesis builds a rich life-cycle model that considers optimal individual decisions on consumption, leisure and portfolio choices under the Australian social security framework. More specifically, we consider the Australia-specific policy details relating to individual income tax, the superannuation system, and the means-tested Age Pension in the model. Then the model is solved with the Endogenous Grid-point Method (EGM). We handle the model parsimoniously and solve the optimal individual decisions for all possible scenarios. The corner solutions raised by the non-concave regions of the value function, non-differentiable income tax function, and borrowing constraint of the decision variables are also discussed in detail. For example, the Upper Envelope Algorithm is applied when there are multiple local optimal solutions. As for the non-differentiability of the function, we simplify the problem to be a discrete-continuous problem and solve for the optimal decisions with the Discrete-Continuous generalization of the Endogenous Grid-point Method (DC-EGM). We gain enormously from the EGM solutions in terms of robustness and computing speed, compared to the traditional Value Function Iteration (VFI) method.Moreover, we compare this model with empirical data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey. We first calculate the data variables from the HILDA Survey and discuss their differences with the model variables. This is also in preparation for the later model estimation. Secondly, we verify the model mechanism by comparing the model outputs and empirical data observations for several policy experiments. From the data visualisation and regression results, we find that the interactions between the policy changes and the individual decisions are consistent with the model implication. Therefore, we conclude that the model is appropriate in terms of predicting the directional change of individuals' decisions with respect to different governmental policy changes.Finally, we estimate the model with the data variables calculated from HILDA Survey and obtain an Australia-specific set of parameters. We contribute to the literature by estimating the age-varying endogenous parameters in the model in the Australian context. We also explicitly show that compared to constant parameters, the age-varying setting improves the goodness of fit significantly. In addition, the optimal model outputs fit well with the empirical data. However, the model outputs and the HILDA data do not match perfectly, which suggests that the estimation results can be further improved by considering a more complex age-varying function form of the model parameters. Another challenge is that the parameters are defined specifically in our model with the CobbDouglas utility function. The individual preference parameters, such as the coefficient of relative risk aversion, are interpreted differently than in other studies. In future research, it could be valuable to investigate the same individual parameters under different utility assumptions and evaluate the differences between the parameter estimation results.
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