Life-cycle consumption, precautionary saving, and risk sharing: an integrated analysis using household panel data

Ahn Seung C. (), Kim H. Youn () and Kang Tong Hee ()
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Ahn Seung C.: Department of Economics, W.P. Carey School of Business, Arizona State University, P.O. Box 873806, Temple, AZ 85287-3806, USA
Kim H. Youn: Department of Economics, Western Kentucky University, Bowling Green, KY 42101, USA
Kang Tong Hee: Department of Economics, Kunsan National University, Kunsan, Chonbuk 573-360, Korea (Republic of)

The B.E. Journal of Macroeconomics, 2017, vol. 17, issue 2, 21

Abstract: This paper presents an integrated model of household consumption behavior and examines its testable implications for various theories of consumption, using panel data on Korean households. The model is framed with an extended Euler equation by incorporating aggregate/idiosyncratic and anticipated/unanticipated income changes with aggregate and idiosyncratic income risk measures. The model can test seven restricted but competing hypotheses such as life-cycle and precautionary saving with and without liquidity constraints, complete risk sharing, and incomplete risk sharing with and without precautionary saving. Each alternative hypothesis is rejected in favor of the integrated model to explain households’ consumption behavior in the panel.

Keywords: household panel data; life-cycle consumption; liquidity constraints; precautionary saving; risk sharing (search for similar items in EconPapers)
JEL-codes: D91 E21 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1515/bejm-2016-0082

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