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Consumption over the Life Cycle and over the Business Cycle

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  • Attanasio, Orazio P
  • Browning, Martin

Abstract

The authors assess the empirical validity of the life-cycle model using a time series of cross sections and a novel parametrization of preferences. The main findings are as follows: the excess sensitivity of consumption growth to labor income disappears when the authors control for demographic variables; the elasticity of intertemporal substitution (EIS) is a function of several variables, including the level of consumption, and the EIS increases with the level of consumption; and the variables that change the EIS are also important in explaining excess sensitivity over the business cycle. The authors are able to reconcile their results with those in the macro and micro literature. Copyright 1995 by American Economic Association.

Suggested Citation

  • Attanasio, Orazio P & Browning, Martin, 1995. "Consumption over the Life Cycle and over the Business Cycle," American Economic Review, American Economic Association, vol. 85(5), pages 1118-1137, December.
  • Handle: RePEc:aea:aecrev:v:85:y:1995:i:5:p:1118-37
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    More about this item

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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