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(This follows Hansen and singleton, 1983 . ) Suppose instantaneous utility is of the constant-relative-risk-aversion form, u(Ct)=Ct^1-θ /(1-θ), θ>0 . Assume that the real interest rate, r, is constant but not necessarily equal to the dis- count rate, ρ(a) Find the Euler equation relating Ct to expectations concerning Ct 1 (b) Suppose that the log of income is distributed normally, and that as a result the log of Ct 1 is distributed normally; let σ^2 denote its variance conditional on information
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