Consumption Over the Life-Cycle

Pierre-Olivier Gourinchas () and Jonathan A. Parker

No 2345, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper employs cohort technique and Consumer Expenditure Survey data to construct average age-profiles of consumption and income over the working lives of typical households across different education and occupation groups. Using these profiles, we estimate a structural model of optimal life-cycle consumption expenditures in the presence of realistic labour income uncertainty. The model fits the profiles quite well. In addition to providing tight estimates of the discount rate and risk aversion, we find that consumer behaviour changes strikingly over the life-cycle. Young consumers behave as buffer-stock agents. Around the age of 40, the typical household starts accumulating liquid assets for retirement and its behaviour mimics more closely that of a certainty equivalent consumer. This change in behaviour is mostly driven by the life-cycle profile of expected income. Our methodology provides a natural decomposition of saving into its precautionary and retirement components.

Keywords: Buffer Stocks; Life Cycle; Precautionary Savings; Simulated Moments (search for similar items in EconPapers)
JEL-codes: C61 D91 E21 (search for similar items in EconPapers)
Date: 2000-01

Downloads: (external link)
http://www.cepr.org/pubs/dps/DP2345.asp (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Consumption Over the Life Cycle (1999)
Working Paper: Consumption Over the Life Cycle (1997)
Journal Article: Consumption Over the Life Cycle (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cpr:ceprdp:2345

Ordering information: This working paper can be ordered from
http://www.cepr.org/pubs/dps/DP2345.asp

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers
Address: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG
Series data maintained by ().