Consumption Over the Life-Cycle

Pierre-Olivier Gourinchas and Jonathan Parker

No 2345, CEPR Discussion Papers from Centre for Economic Policy Research

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
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://cepr.org/publications/DP2345 (application/pdf)

Related works:
Journal Article: Consumption Over the Life Cycle (2002)
Working Paper: Consumption Over the Life Cycle (1999)
Working Paper: Consumption Over the Life Cycle (1997)
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: https://EconPapers.repec.org/RePEc:cpr:ceprdp:2345

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP2345

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().