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Consumption over the life cycle and the business cycle

Attanasio, O.; Browning, M.; (1995) Consumption over the life cycle and the business cycle. American Economic Review , 85 (5) pp. 1118-1137.

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We assess the empirical validity of the life-cycle model using a time series of cross sections and a novel parametrization of preferences. The main findings are as follows: (i) The excess sensitivity of consumption growth to labor income disappears when we control for demographic variables. (ii) The elasticity of intertemporal substitution (EIS) is a function of several variables, including the level of consumption. The EIS increases with the level of consumption. (iii) The variables that change the EIS are also important in explaining excess sensitivity over the business cycle. We are able to reconcile our results with those in the macro and micro literature.

Title:Consumption over the life cycle and the business cycle
Publisher version:http://www.aeaweb.org/aer/index.php
Additional information:This issue is available via subscription to JSTOR at http://www.jstor.org/stable/2950978 Please see http://eprints.ucl.ac.uk/15245/ a Working Paper version
Keywords:JEL classification: D30, D91, E14. Consumption, life cycle
UCL classification:UCL > School of Arts and Social Sciences > Faculty of Social and Historical Sciences > Economics

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