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The Impact of Age Distribution Variables on the Long Run Consumption Function

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  • Clifford L.F. Attfield
  • Edmund Cannon

    ()

Abstract

Modigliani's Life Cycle Hypothesis (LCH) predicts that demographic variables should play a significant role in our understanding of the relationship between consumption and income. Understanding this relationship is particularly important given the demographic changes expected in the next few decades. Unfortunately, evidence for the importance of demographic variables is mixed: unsurprisingly since such variables change relatively slowly and most analysis is confined to post war data. In this paper we use a much longer time series of aggregate variables (1856-1996) which models consumption, income and demographic effects in a vector error correction framework allowing for structural breaks. Our analysis shows that demographic effects have an important effect in the manner predicted by the LCH.

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File URL: http://www.efm.bris.ac.uk/economics/working_papers/pdffiles/dp03546.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 03/546.

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Length: 10 pages
Date of creation: Jan 2003
Date of revision:
Handle: RePEc:bri:uobdis:03/546

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Related research

Keywords: Consumption; ageing population; breaks in trend.;

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References

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  1. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
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Cited by:
  1. E Philip Davis, 2006. "How Will Ageing Affect the Structure of Financial Markets?," RBA Annual Conference Volume, in: Christopher Kent & Anna Park & Daniel Rees (ed.), Demography and Financial Markets Reserve Bank of Australia.
  2. Panetta, Ida Claudia, 2006. "Financial markets trend: ageing and pension system reform," MPRA Paper 18391, University Library of Munich, Germany.
  3. Park, Joon Y. & Shin, Kwanho & Whang, Yoon-Jae, 2010. "A semiparametric cointegrating regression: Investigating the effects of age distributions on consumption and saving," Journal of Econometrics, Elsevier, vol. 157(1), pages 165-178, July.
  4. Solveig Erlandsen & Ragnar Nymoen, 2008. "Consumption and population age structure," Journal of Population Economics, Springer, vol. 21(3), pages 505-520, July.

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