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Stochastic implications of the life cycle consumption model under rational habit formation

Author

Listed:
  • Carlo C.A. WINDER

    (De Nederlandsche Bank N.V.)

  • Franz C. PALM

    (University of Maastricht)

Abstract

Hall [1978] showed that the life cycle consumption hypothesis implies a first order autoregressive process for the marginal utility of consumption. This paper extends his results by showing that an appropriate pattern of rational habits will lead to an arbitrary autoregressive integrated moving average (ARIMA) process for consumption. Since the framework allows for consumption of durable goods, the analysis ex- tends the results of Mankiw [1982].

Suggested Citation

  • Carlo C.A. WINDER & Franz C. PALM, 1996. "Stochastic implications of the life cycle consumption model under rational habit formation," Discussion Papers (REL - Recherches Economiques de Louvain) 1996043, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvre:1996043
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    Cited by:

    1. Champarnaud, Luc & Michel, Philippe, 2000. "Biens culturels, transmission de culture et croissance," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(4), pages 501-520, décembre.

    More about this item

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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