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The Life-Cycle Model of Consumption and Saving

  • Martin Browning
  • Thomas F. Crossley

A central implication of life-cycle models is that agents smooth consumption. We review the empirical evidence on smoothing at frequencies from within the year up to across a lifetime. We find that life-cycle models--particular those which incorporate realistic features of markets and goods--have more empirical successes than failures. We also show that some apparent deviations from theoretical predictions imply very small welfare losses for agents. Finally, we emphasize that the coherence of life-cycle models imposes an important discipline when incorporating new features into models.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.15.3.3
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 15 (2001)
Issue (Month): 3 (Summer)
Pages: 3-22

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Handle: RePEc:aea:jecper:v:15:y:2001:i:3:p:3-22
Note: DOI: 10.1257/jep.15.3.3
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