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December 2, 2025Financial ManagementOpen Access

Life Cycle Consumption and Portfolio Choice Under Real Interest Rate Risk

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Authors

MFMarcel FischerNJNatascha JankowskiMFMarcel Fischer

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Overview

Model demonstrates that lower interest rates increase overconsumption in households, hinting at welfare losses especially at retirement age.

Key Points

  • Lower real interest rates increase optimal stock investments and lead to overconsumption.
  • Ignoring real interest rates can result in substantial welfare costs, especially near retirement age.
  • Model highlights the link between real interest rates and household investment behavior.
  • Extended periods of low interest rates may cause significant welfare losses before retirement.

Cite This Study

Fischer et al. (2025) studied this question.

synapsesocial.com/papers/6940274a2d562116f28ff5f2https://doi.org/10.1111/fima.70019
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