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Rationalizing Seven Consumption-Saving Puzzles in a Unified Framework

  • Kevin X.D. Huang


    (Department of Economics, Vanderbilt University)

  • Frank Caliendo


    (Department of Economics, Utah State University)

Empirical evidence suggests that it may cost time, effort, and resources to properly implement a saving plan, though such cost may differ across individual consumers. We document seven facts on macroeconomic consumption and saving over the life cycle, and we enrich a simple life-cycle model by costly saving implementation to explain these facts. This friction is the sole and common mechanism in our model for rationalizing this series of facts, as the model abstracts from all existing mechanisms that are known to help explain some of them. The implementation costs in our model are small, yet they help resolve these macroeconomic consumption and saving puzzles in a simple and unified way.

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File Function: First version, 2007
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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0716.

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Date of creation: Oct 2007
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Handle: RePEc:van:wpaper:0716
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