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Aggregate Stochastic Implications of the Life Cycle Hypothesis

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  • Richard H. Clarida

Abstract

This paper sets forth some key aggregate stochastic implications of the Modigliani-Brumberg [1980] life cycle hypothesis and explores the extent to which a properly aggregated life cycle model can help to explain the first and second moment properties of changes in per capita consumption. The principal finding of the paper, which to my knowledge is new, is that smooth per capita consumption in the presence of permanent shocks to per capital labor income is exactly the outcome one should expect from a properly aggregated life cycle model in which saving for retirement, as well as for consumption smoothing, is a motive for asset accumulation.

Suggested Citation

  • Richard H. Clarida, 1991. "Aggregate Stochastic Implications of the Life Cycle Hypothesis," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 851-867.
  • Handle: RePEc:oup:qjecon:v:106:y:1991:i:3:p:851-867.
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    File URL: http://hdl.handle.net/10.2307/2937930
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    Cited by:

    1. Karen E. Dynan, 2000. "Habit Formation in Consumer Preferences: Evidence from Panel Data," American Economic Review, American Economic Association, vol. 90(3), pages 391-406, June.
    2. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January.
    3. Gertler, Mark, 1999. "Government debt and social security in a life-cycle economy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 61-110, June.
    4. Charlotte Ostergaard & Bent E. Serensen & Oved Yosha, 2002. "Consumption and Aggregate Constraints: Evidence from U.S. States and Canadian Provinces," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 634-645, June.
    5. Emilio Fernandez-Corugedo, 2004. "Consumption Theory," Handbooks, Centre for Central Banking Studies, Bank of England, number 23, March.
    6. Bent E. Sorensen & Charlotte Ostergaard & Oved Yosha, 1998. "Permanent Income, Consumption and Aggregate Constraints: Evidence from US States," FMG Discussion Papers dp287, Financial Markets Group.
    7. G. C. Lim & Sarantis Tsiaplias, 2015. "Financial Stress Thresholds and Household Equivalence Scales," Melbourne Institute Working Paper Series wp2015n05, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    8. Andrew Benito, 2006. "Does job insecurity affect household consumption?," Oxford Economic Papers, Oxford University Press, vol. 58(1), pages 157-181, January.
    9. Rossi, Mariacristina, 2005. "Households’ Consumption under the Habit Formation Hypothesis. Evidence from Italian Households using the Survey of Household Income and Wealth (SHIW)," Economics Discussion Papers 8886, University of Essex, Department of Economics.
    10. Gordon de Brouwer, 1996. "Consumption and Liquidity Constraints in Australia and East Asia: Does Financial Integration Matter?," RBA Research Discussion Papers rdp9602, Reserve Bank of Australia.
    11. Ramsey, James B., 1996. "On the existence of macro variables and of macro relationships," Journal of Economic Behavior & Organization, Elsevier, vol. 30(3), pages 275-299, September.
    12. Jim Malley & Hassan Molana, "undated". "The Permanent Income Hypothesis Revisited: Reconciling Evidence from Aggregate Data with the Representative Consumer Behaviour," ICMM Discussion Papers 48, Department of Economics University of Strathclyde.
    13. Jim Malley & Hassan Molana, 2002. "The Life-Cycle-Permanent-Income Model: A Reinterpretation and Supporting Evidence," Working Papers 2002_17, Business School - Economics, University of Glasgow.
    14. Jim Malley & Hassan Molana, 1999. "The Permanent Income Hypothesis Revisited," Dundee Discussion Papers in Economics 105, Economic Studies, University of Dundee.
    15. Alvin Tan & Graham Voss, 2000. "Consumption and Wealth," RBA Research Discussion Papers rdp2000-09, Reserve Bank of Australia.
    16. Cooley, Thomas F., 1999. "Government debt and social security in a life-cycle economy : A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 111-117, June.
    17. Jim Malley & Hassan Molana, 2003. "The Life-Cycle-Permanent- Income Hypothesis: A Reinterpretation and Supporting Evidence," Dundee Discussion Papers in Economics 138, Economic Studies, University of Dundee.
    18. Päivi Kankaanranta, 2006. "Consumption Over the Life Cycle: A Selected Literature Review," Discussion Papers 7, Aboa Centre for Economics.
    19. Muhammad Rahman, 2008. "Demographic Uncertainty and Welfare in a Life-Cycle Model Under Alternative Public Pension Systems," Caepr Working Papers 2008-024, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.

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