Rationalizing Seven Consumption-Saving Puzzles in a Unified Framework

Kevin Huang () and Frank Caliendo

No 716, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: Empirical evidence suggests that it may cost time, effort, and resources to properly implement a saving plan, though such cost may differ across individual consumers. We document seven facts on macroeconomic consumption and saving over the life cycle, and we enrich a simple life-cycle model by costly saving implementation to explain these facts. This friction is the sole and common mechanism in our model for rationalizing this series of facts, as the model abstracts from all existing mechanisms that are known to help explain some of them. The implementation costs in our model are small, yet they help resolve these macroeconomic consumption and saving puzzles in a simple and unified way.

Keywords: Overconfidence; consumption; life cycle; time inconsistency; hump shape; elasticity of intertemporal substitution (search for similar items in EconPapers)
JEL-codes: C61 D91 E21 (search for similar items in EconPapers)
Date: 2007-10
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0716

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