Skip to main content
×
Home
    • Aa
    • Aa

CONSUMPTION AND SAVING OVER THE LIFE CYCLE: HOW IMPORTANT ARE CONSUMER DURABLES?

  • Jesús Fernández-Villaverde (a1) and Dirk Krueger (a1)
Abstract

In this paper we investigate whether a standard life-cycle model in which households purchase nondurable consumption and consumer durables and face idiosyncratic income and mortality risk as well as endogenous borrowing constraints can account for two key patterns of consumption and asset holdings over the life cycle. First, consumption expenditures on both durable and nondurable goods are hump-shaped. Second, young households keep very few liquid assets and hold most of their wealth in consumer durables. In our model durables play a dual role: they both provide consumption services and act as collateral for loans. A plausibly parameterized version of the model predicts that the interaction of consumer durables and endogenous borrowing constraints induces durables accumulation early in life and higher consumption of nondurables and accumulation of financial assets later in the life cycle, of an order of magnitude consistent with observed data.

Copyright
Corresponding author
Address correspondence to: Dirk Krueger, Department of Economics, University of Pennsylvania, 3718 Locust Walk, Philadelphia, PA 19104, USA; e-mail: dkrueger@econ.upenn.edu.
Linked references
Hide All

This list contains references from the content that can be linked to their source. For a full set of references and notes please see the PDF or HTML where available.

A. Deaton (1992) Understanding Consumption. Oxford, UK: Oxford University Press.

A. Deaton. (1997) The Analysis of Households Surveys. Baltimore, MD: Johns Hopkins University.

Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
  • URL: /core/journals/macroeconomic-dynamics
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Keywords:

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 140 *
Loading metrics...

Abstract views

Total abstract views: 457 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 30th March 2017. This data will be updated every 24 hours.