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

Author

Listed:
  • 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))

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.

Suggested Citation

  • Ahn Seung C. & Kim H. Youn & Kang Tong Hee, 2017. "Life-cycle consumption, precautionary saving, and risk sharing: an integrated analysis using household panel data," The B.E. Journal of Macroeconomics, De Gruyter, vol. 17(2), pages 1-21, June.
  • Handle: RePEc:bpj:bejmac:v:17:y:2017:i:2:p:21:n:11
    DOI: 10.1515/bejm-2016-0082
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    More about this item

    Keywords

    household panel data; life-cycle consumption; liquidity constraints; precautionary saving; risk sharing;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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