The Impact of Age Distribution Variables on the Long Run Consumption Function
AbstractModigliani'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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Bibliographic InfoPaper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 03/546.
Length: 10 pages
Date of creation: Jan 2003
Date of revision:
Consumption; ageing population; breaks in trend.;
Find related papers by JEL classification:
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
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