Stochastic implications of the life cycle consumption model under rational habit formation
Hall  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 .
|Date of creation:||01 Sep 1996|
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