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Consumption and saving behaviour: modelling recent trends

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  • Orazio Attanasio

    ()
    (Institute for Fiscal Studies and University College London)

Abstract

This paper illustrates recent trends in household consumption and personal savings in the UK and the US and discusses some theoretical models that can be used to interpret them. The trends in these two countries are interesting for several reasons. The decline in personal saving rates in the US during the 1980s is an unresolved puzzle. The corresponding variable in the UK has undergone large fluctuations, as have several other variables ranging from projected demographic trends to female labour supply. This paper stresses the need to analyse individual data to shed some light on these aggregate trends. It also stresses the need to have a sound structural model to interpret observed patterns in the data. The theoretical framework discussed throughout the paper is the life-cycle model, which views consumption and saving decisions as part of a dynamic optimisation process. The development of the model and the current research agenda and ways that it can be enriched with various degrees of sophistication are discussed. Particular attention is devoted to the discussion of the most recent developments.

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Bibliographic Info

Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 18 (1997)
Issue (Month): 1 (February)
Pages: 23-47

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Handle: RePEc:ifs:fistud:v:18:y:1997:i:1:p:23-47

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  1. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-48, September.
  2. Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers 3-95, Wharton School Rodney L. White Center for Financial Research.
  3. Grossman, Sanford J & Laroque, Guy, 1990. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," Econometrica, Econometric Society, vol. 58(1), pages 25-51, January.
  4. Orazio P. Attanasio & Martin Browning, 1993. "Consumption over the Life Cycle and over the Business Cycle," NBER Working Papers 4453, National Bureau of Economic Research, Inc.
  5. Thurow, Lester C, 1969. "The Optimum Lifetime Distribution of Consumption Expenditures," American Economic Review, American Economic Association, vol. 59(3), pages 324-30, June.
  6. 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.
  7. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  8. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
  9. Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, vol. 53(3), pages 503-43, May.
  10. Richard Blundell & Martin Browning & Costas Meghir, 1993. "Consumer demand and the life-cycle allocation of household expenditures," IFS Working Papers W93/11, Institute for Fiscal Studies.
  11. A Gosling & Stephen Machin, 1995. "The Changing Distribution of Male Wages in the UK," CEP Discussion Papers dp0271, Centre for Economic Performance, LSE.
  12. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86, September.
  13. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
  14. Banks, James & Blundell, Richard & Preston, Ian, 1994. "Life-cycle expenditure allocations and the consumption costs of children," European Economic Review, Elsevier, vol. 38(7), pages 1391-1410, August.
  15. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  16. Orazio Attanasio & James Banks, 1998. "Trends in household saving: a tale of two countries," IFS Working Papers W98/15, Institute for Fiscal Studies.
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Cited by:
  1. Andersson, Björn, 1999. "On the Causality Between Saving and Growth: Long- and Short-Run Dynamics and Country Heterogeneity," Working Paper Series 1999:18, Uppsala University, Department of Economics.
  2. Hernandez Martinez, Fernando, 2007. "El ahorro privado de las familias y las pensiones públicas en Alemania y Estados Unidos:¿cumplimiento de la hipótesis del ciclo vital?
    [Household private saving and public pensions in Germany an
    ," MPRA Paper 18044, University Library of Munich, Germany.
  3. Paulo Santos Monteiro, 2007. "Family Labor Supply, Precautionary Behavior, Aggregate Saving and Employment," 2007 Meeting Papers 180, Society for Economic Dynamics.
  4. Orazio Attanasio & Margherita Borella, 2006. "Stochastic Components of Individual Consumption: A Time Series Analysis of Grouped Data," NBER Working Papers 12456, National Bureau of Economic Research, Inc.

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