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The Impact of Age Distribution Variables on the Long Run Consumption Function

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  • Clifford L.F. Attfield
  • Edmund Cannon

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Abstract

Modigliani's Life Cycle Hypothesis (LCH) predicts that demographic variables should play a significant role in our understanding of the relationship between consumption and income. Understanding this relationship is particularly important given the demographic changes expected in the next few decades. Unfortunately, evidence for the importance of demographic variables is mixed: unsurprisingly since such variables change relatively slowly and most analysis is confined to post war data. In this paper we use a much longer time series of aggregate variables (1856-1996) which models consumption, income and demographic effects in a vector error correction framework allowing for structural breaks. Our analysis shows that demographic effects have an important effect in the manner predicted by the LCH.

Suggested Citation

  • Clifford L.F. Attfield & Edmund Cannon, 2003. "The Impact of Age Distribution Variables on the Long Run Consumption Function," Bristol Economics Discussion Papers 03/546, Department of Economics, University of Bristol, UK.
  • Handle: RePEc:bri:uobdis:03/546
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    File URL: http://www.efm.bris.ac.uk/economics/working_papers/pdffiles/dp03546.pdf
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    References listed on IDEAS

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    1. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
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    Cited by:

    1. Panetta, Ida Claudia, 2006. "Financial markets trend: ageing and pension system reform," MPRA Paper 18391, University Library of Munich, Germany.
    2. E Philip Davis, 2006. "How Will Ageing Affect the Structure of Financial Markets?," RBA Annual Conference Volume,in: Christopher Kent & Anna Park & Daniel Rees (ed.), Demography and Financial Markets Reserve Bank of Australia.
    3. Solveig Erlandsen & Ragnar Nymoen, 2008. "Consumption and population age structure," Journal of Population Economics, Springer;European Society for Population Economics, vol. 21(3), pages 505-520, July.
    4. Park, Joon Y. & Shin, Kwanho & Whang, Yoon-Jae, 2010. "A semiparametric cointegrating regression: Investigating the effects of age distributions on consumption and saving," Journal of Econometrics, Elsevier, vol. 157(1), pages 165-178, July.
    5. Maiko Koga, 2006. "The Decline Of Japan'S Saving Rate And Demographic Effects," The Japanese Economic Review, Japanese Economic Association, vol. 57(2), pages 312-321.
    6. Maiko Koga, 2005. "The Decline of Japan's Saving Rate and Demographic Effects," Bank of Japan Working Paper Series 05-E-10, Bank of Japan.
    7. Rami Ben HAJ-KACEM, 2015. "The Impact of Age Distribution on Household Consumption: Evidence from Saudi Arabia," Turkish Economic Review, KSP Journals, vol. 2(4), pages 277-304, December.
    8. Britta Stoever, 2012. "The Influence of Age on Consumption," EcoMod2012 3808, EcoMod.
    9. Jochen Mierau & Stephen Turnovsky, 2014. "Capital accumulation and the sources of demographic change," Journal of Population Economics, Springer;European Society for Population Economics, vol. 27(3), pages 857-894, July.

    More about this item

    Keywords

    Consumption; ageing population; breaks in trend.;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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