Can mortality risk explain the consumption hump?
AbstractA lifecycle consumption profile with a hump of roughly the same relative size and peak location as empirical consumption profiles can be obtained in a general equilibrium model where mortality risk is the only active mechanism that can account for the hump. Moreover, the key preference parameter, the elasticity of intertemporal substitution, is close to that estimated in a buffer-stock saving model by Gourinchas and Parker [Gourinchas, Pierre-Olivier, Parker, Jonathan A., 2002. Consumption over the life cycle. Econometrica 70, 47-89], where borrowing constraints primarily account for the consumption hump. Since borrowing is virtually eliminated in the model with mortality risk, mortality supplants the borrowing constraint as the explanation for the hump with these parameters. If a pay-as-you-go Social Security system is also incorporated in the model, mortality risk can no longer account for the observed properties of the hump. However, the set of intertemporal elasticities for which mortality risk disables the borrowing constraint in the neighborhood of peak consumption extends to any value greater than 1/3.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Macroeconomics.
Volume (Year): 30 (2008)
Issue (Month): 3 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622617
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Laibson, David I., 1997.
"Golden Eggs and Hyperbolic Discounting,"
4481499, Harvard University Department of Economics.
- Gary Hansen & Selahattin Imrohoroglu, 2008.
"Consumption over the Life Cycle: The Role of Annuities,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 566-583, July.
- Gary D. Hansen & Selahattin Imrohoroglu, 2006. "Consumption Over the Life Cycle: The Role of Annuities," NBER Working Papers 12341, National Bureau of Economic Research, Inc.
- Gourinchas, Pierre-Olivier & Parker, Jonathan A, 2000.
"Consumption Over the Life-Cycle,"
CEPR Discussion Papers
2345, C.E.P.R. Discussion Papers.
- Caliendo, Frank & Aadland, David, 2007.
"Short-term planning and the life-cycle consumption puzzle,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 31(4), pages 1392-1415, April.
- Frank Caliendo & David Aadland, 2004. "Short-term planning and the life-cycle consumption puzzle," Microeconomics 0404003, EconWPA.
- Attanasio, Orazio P, et al, 1999.
"Humps and Bumps in Lifetime Consumption,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 17(1), pages 22-35, January.
- Orazio P. Attanasio & James Banks & Costas Meghir & Guglielmo Weber, 1995. "Humps and Bumps in Lifetime Consumption," NBER Working Papers 5350, National Bureau of Economic Research, Inc.
- Orazio Attanasio & James Banks & Costas Meghir & Guglielmo Weber, 1995. "Humps and bumps in lifetime consumption," IFS Working Papers W95/14, Institute for Fiscal Studies.
- Ellen R. McGrattan & Edward C. Prescott, 2001.
"Is the Stock Market Overvalued?,"
NBER Working Papers
8077, National Bureau of Economic Research, Inc.
- David B. Gross & Nicholas S. Souleles, 2001.
"Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data,"
NBER Working Papers
8314, National Bureau of Economic Research, Inc.
- David B. Gross & Nicholas S. Souleles, 2002. "Do Liquidity Constraints And Interest Rates Matter For Consumer Behavior? Evidence From Credit Card Data," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 149-185, February.
- James Feigenbaum, 2006.
"Precautionary Saving Unfettered,"
227, University of Pittsburgh, Department of Economics, revised Jan 2006.
- Christopher D. Carroll & Lawrence H. Summers, 1991.
"Consumption Growth Parallels Income Growth: Some New Evidence,"
in: National Saving and Economic Performance, pages 305-348
National Bureau of Economic Research, Inc.
- Chris Carroll & Lawrence H. Summers, 1989. "Consumption Growth Parallels Income Growth: Some New Evidence," NBER Working Papers 3090, National Bureau of Economic Research, Inc.
- Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer, vol. 6(1), pages 83-114, June.
- Gilbert Ghez & Gary S. Becker, 1975. "The Allocation of Time and Goods over the Life Cycle," NBER Books, National Bureau of Economic Research, Inc, number ghez75-1, October.
- Lars Ljungqvist & Thomas J. Sargent, 2004. "Recursive Macroeconomic Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026212274x, January.
- R. Glenn Hubbard & Jonathan Skinner & Stephen P. Zeldes, 1994.
"The Importance of Precautionary Motives in Explaining Individual and Aggregate Saving,"
NBER Working Papers
4516, National Bureau of Economic Research, Inc.
- Hubbard, R. Glenn & Skinner, Jonathan & Zeldes, Stephen P., 1994. "The importance of precautionary motives in explaining individual and aggregate saving," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 59-125, June.
- Dirk Krueger & Jesus Fernandez-Villaverde, 2004.
"Consumption over the Life Cycle: Some Facts from Consumer Expenditure Survey Data,"
2004 Meeting Papers
173, Society for Economic Dynamics.
- Jesus Fernandez-Villaverde & Dirk Krueger, 2002. "Consumption over the Life Cycle: Some Facts from Consumer Expenditure Survey Data," Centro de AltiÂsimos Estudios RiÂos PeÂ©rez(CAERP) 7, Centro de Altisimos Estudios Rios Perez (CAERP).
- Jesús Fernández-Villaverde & Dirk Krueger, 2003. "Consumption over the Life Cycle: Some Facts from Consumer Expenditure Survey Data," Levine's Working Paper Archive 506439000000000304, David K. Levine.
- Thurow, Lester C, 1969. "The Optimum Lifetime Distribution of Consumption Expenditures," American Economic Review, American Economic Association, vol. 59(3), pages 324-30, June.
- Heckman, James J, 1974. "Life Cycle Consumption and Labor Supply: An Explanation of the Relationship Between Income and Consumption Over the Life Cycle," American Economic Review, American Economic Association, vol. 64(1), pages 188-94, March.
- Nagatani, Keizo, 1972. "Life Cycle Saving: Theory and Fact," American Economic Review, American Economic Association, vol. 62(3), pages 344-53, June.
- Martin Browning & Mette Ejrnæs, 2009.
"Consumption and Children,"
The Review of Economics and Statistics,
MIT Press, vol. 91(1), pages 93-111, February.
- Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July.
- Gilbert Ghez & Gary S. Becker, 1975. "A Theory of the Allocation of Time and Goods Over the Life Cycle," NBER Chapters, in: The Allocation of Time and Goods over the Life Cycle, pages 1-45 National Bureau of Economic Research, Inc.
- Raj Chetty, 2006.
"A New Method of Estimating Risk Aversion,"
American Economic Review,
American Economic Association, vol. 96(5), pages 1821-1834, December.
- Davies, James B, 1981. "Uncertain Lifetime, Consumption, and Dissaving in Retirement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 561-77, June.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.