Skip to main content Accessibility help
×
Hostname: page-component-78c5997874-94fs2 Total loading time: 0 Render date: 2024-11-08T05:29:02.410Z Has data issue: false hasContentIssue false

14 - Life-cycle models of consumption: Is the evidence consistent with the theory?

Published online by Cambridge University Press:  05 January 2013

Truman F. Bewley
Affiliation:
Yale University, Connecticut
Get access

Summary

Abstract In this chapter I discuss some empirical evidence that reflects on the validity of life-cycle models of consumer behavior. I make no attempt to provide a survey but rather focus on a number of specific issues that seem to me to be important or that seem to have been unreasonably neglected in the current literature. The chapter has three sections. The first looks at the stylized facts. In particular, I look at the nonparametric evidence with emphasis on both consumption and labor supply and the interaction between them. I present some aggregate time series data from the United States; these suggest that simple representative agent models of the life cycle are unlikely to be very helpful, at least without substantial modification. It is particularly hard to come up with one explanation that is consistent both with these data and the wealth of evidence on consumption and labor supply from microeconomic information. However, I argue that the main problem here is not so much the theory as the aggregation; except under extremely implausible assumptions, including the supposition that consumers are immortal, life-cycle theory does not predict the sort of aggregate relationships that are implied by representative agent models. In particular, it makes little sense to look for a simple relationship between the real rate of interest and the rate of growth of aggregate consumption. Section 2 is concerned with the estimation of parametric models on aggregate time series data. I review briefly the “excess-sensitivity” issue as well as some of the econometric problems associated with the nonstationarity of the income and consumption time series. My main point, however, is to argue that there are interactions between the time series representation of income and the life-cycle model that have not been adequately recognized in the literature.

Type
Chapter
Information
Advances in Econometrics
Fifth World Congress
, pp. 121 - 148
Publisher: Cambridge University Press
Print publication year: 1987

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Save book to Kindle

To save this book to your Kindle, first ensure [email protected] is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×