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Birth, Death, and Consumption: Overlapping Generations and the Random Walk Hypothesis

  • William Smith
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    This paper studies the time-series behavior of consumption in a model that incorporates birth, death, and a precautionary motive for saving. Consumption of an individual agent is a random walk. However, aggregate consumption is a random walk if and only if the sum of the death rate and population growth rate is zero. Failure of the random walk hypothesis should not be attributed to finite horizons perse, but rather to inter-generational transfers caused by birth and death. Unlike certainty-equivalent models, the expected growth of consumption depends on financial wealth, rather than wage income or human capital. [D91, E21]

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/10168739800000024
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    Article provided by Taylor & Francis Journals in its journal International Economic Journal.

    Volume (Year): 12 (1998)
    Issue (Month): 4 ()
    Pages: 105-116

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    Handle: RePEc:taf:intecj:v:12:y:1998:i:4:p:105-116
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    1. Robert B. Barsky & N. Gregory Mankiw & Stephen P. Zeldes, 1987. "Ricardian Consumers With Keynesian Propensities," NBER Working Papers 1400, National Bureau of Economic Research, Inc.
    2. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
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    7. Olivier J. Blanchard, 1991. "Current and Anticipated Deficits, Interest Rates and Economic Activity," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 361-390 National Bureau of Economic Research, Inc.
    8. Jonathan S. Skinner, 1987. "Risky Income, Life Cycle Consumption, and Precautionary Savings," NBER Working Papers 2336, National Bureau of Economic Research, Inc.
    9. Haque, Nadeem U & Montiel, Peter, 1989. "Consumption in Developing Countries: Tests for Liquidity Constraintsand Finite Horizons," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 408-15, August.
    10. Larry E. Jones & Rodolfo Manuelli, 1990. "A Convex Model of Equilibrium Growth," NBER Working Papers 3241, National Bureau of Economic Research, Inc.
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    12. Zeldes, Stephen P, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 275-98, May.
    13. Irvine, Ian & Wang, Susheng, 1994. "Earnings Uncertainty and Aggregate Wealth Accumulation: Comment," American Economic Review, American Economic Association, vol. 84(5), pages 1463-69, December.
    14. Caballero, R.J., 1988. "Consumption Puzzles And Precautionary Savings," Discussion Papers 1988_05, Columbia University, Department of Economics.
    15. Attanasio, Orazio P & Weber, Guglielmo, 1993. "Consumption Growth, the Interest Rate and Aggregation," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 631-49, July.
    16. Olivier J. Blanchard & N. Gregory Mankiw, 1988. "Consumption: Beyond Certainty Equivalence," NBER Working Papers 2496, National Bureau of Economic Research, Inc.
    17. Weil, Philippe, 1993. "Precautionary Savings and the Permanent Income Hypothesis," Review of Economic Studies, Wiley Blackwell, vol. 60(2), pages 367-83, April.
    18. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, vol. 38(2), pages 183-198, March.
    19. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
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