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Neoclassical life-cycle consumption: a textbook example

Author

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  • Monika BØtler

    (CentER for Economic Research, Tilburg University, and DÊpartement d'Êconometrie et d'Êconomie politique, HEC, UniversitÊ de Lausanne, BFSH1, 1004 Lausanne, SWITZERLAND)

Abstract

We present a simple neoclassical life-cycle model in continuous time, in which the effects of endogenous labor supply, uncertain lifetime, and family composition on consumption and income profiles are jointly analyzed. Due to a parsimonious specification, analytical solutions for consumption growth are available for constant intertemporal elasticity of substitution preferences. Without relying on borrowing constraints, the model can generate a hump in the consumption profile, and a comovement of consumption and income during working life.

Suggested Citation

  • Monika BØtler, 2001. "Neoclassical life-cycle consumption: a textbook example," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 17(1), pages 209-221.
    • Handle: RePEc:spr:joecth:v:17:y:2001:i:1:p:209-221
    Note: Received: June 9, 1999; revised version: October 4, 1999
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    Cited by:

    1. repec:ebl:ecbull:v:3:y:2004:i:10:p:1-3 is not listed on IDEAS
    2. Frank Caliendo & Kevin X. D. Huang, 2007. "Overconfidence in financial markets and consumption over the life cycle," Working Papers 07-3, Federal Reserve Bank of Philadelphia.

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