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Consumption Over the Life Cycle: Theory and Empirical Regularities

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Author Info
Paivi Kankaanranta (Department of Economics, University of Turku)
Abstract

Simple life cycle and permanent income hypotheses imply that changes in consumption should be unforecastable. Rational forward-looking agents ought to smooth consumption over the life cycle and exhaust the asset stock accumulated during the working career in retirement. Empirical observations seem not to conform to these predictions of the simple theory of intertemporal choice which has given rise to elaborations on the benchmark model. The theoretical discussion of this paper concentrates on literature dealing with the seemingly problematic empirical regularities and on proposed explanations. The review of literature focuses particularly on the life cycle issues of consumption behaviour.

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Paper provided by University of Turku, Department of Economics in its series Research Reports with number 118.

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Length: 44 pages
Date of creation: Apr 2006
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Handle: RePEc:utu:wpaper:118

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Related research
Keywords: Consumption; Life cycle; Permanent income;

Find related papers by JEL classification:
B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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