Hostname: page-component-8448b6f56d-c47g7 Total loading time: 0 Render date: 2024-04-19T19:18:33.967Z Has data issue: false hasContentIssue false
  • English
  • Français

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

Published online by Cambridge University Press:  17 August 2016

Carlo C.A. Winder  and
Franz C. Palm
Carlo C.A. Winder
Affiliation:
De Nedcrlandsche Bank N. V.
Franz C. Palm
Affiliation:
University of Maastricht
Get access

Summary

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 extends the results of Mankiw [1982]

Résumé

Résumé

Hall [1978] a montré que l’hypothèse du cycle de vie implique que l’utilité marginale de la consommation est engendrée par un processus autorégressif d’ordre un. Cet article généralise les résultats de Hall en montrant que sous certaines formes de formation d’habitudes l’utilité marginale suit un processus autorégressif integré avec moyenne mobile (AEIMA) général. Comme le résultat s’applique à la consommation de biens durables, il

Keywords

B22D12C32B22D12C32
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 62 , Issue 3-4 , 1996 , pp. 403 - 412
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1996 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

(*)

Stimulating discussions with Rob Alessie and Wayne Ferson and helpful comments of two anonymous referees are gratefully acknowledged.

References

Becker, G.S. and Murphy, K.M. [1988], A theory of rational addiction, Journal of Political Economy, 96(4), pp. 675–700.Google Scholar
Blanchard, O.J. and Mankiw, N.G. [1988], Consumption: Beyond certainty, American Economic Review, 78(2), pp. 173–177.Google Scholar
Braun, P.A., Constantinides, G.M. and Ferson, W.E. [1993], Time separability in aggregate consumption: International evidence, European Economic Review, 37(3), pp. 895–920.Google Scholar
Caballero, R.J. [1990], Consumption puzzles and precautionary savings, Journal of Monetary Economics, 25(1), pp. 113–136.Google Scholar
Caballero, R.J. [1991], Earnings uncertainty and aggregate wealth, American Economic Review, 81(4), pp. 859–871.Google Scholar
Campbell, J.Y. and Cochrane, J.H. [1994], By force of habit: A consumption-based explanation of aggregate stock market behavior, NBER Working Paper N‘’ 4995, Cambridge, MA.Google Scholar
Clarida, R. [1991], Aggregate stochastic implications of the life cycle hypothesis, Quarterly Journal of Economics, 106(3), pp. 851–869.Google Scholar
Constantinides, G.M. [1990], Habit formation: A resolution of the equity premium puzzle, Journal of Political Economy, 98(3), pp. 519–543.Google Scholar
Eichenbaum, M. and Hansen, L.P. [1990], Estimating models with intertemporal substitution using aggregate time series data, Journal of Business and Economic Statistics, 8(1), pp. 53–69.Google Scholar
Ferson, W.E. and Constantinides, G.M. [1991], Habit persistence and durability in aggregate consumption: Empirical tests, Journal of Financial Economics, 29(2), pp. 197–240.Google Scholar
Hall, R.E. [1978], Stochastic implications of the life cycle-permanent income hypothesis: Theory and evidence, Journal of Political Economy, 86(6), pp. 971–987.Google Scholar
Houthakker, H.S. and Taylor, L.D. [1970], Consumer Demand in the United States: Analysis and Projections, second edition, Cambridge, Harvard University Press.Google Scholar
Kimball, M.S. [1990], Precautionary saving in the small and in the large, Econometrica, 58(1), pp. 53–73.Google Scholar
Mariger, R.P. [1987)], A life cycle consumption model with liquidity constraints: Theory and empirical results, Econometrica, 55(3), pp. 533–557.Google Scholar
Mankiw, N.G. [1982], Hall’s consumption hypothesis and durable goods, Journal of Monetary Economics, 40(4), pp. 417–425.Google Scholar
Muellbauer, J. [1988], Habits, rationality, and myopia in the life-cycle consumption function, Aiuiales d’Economic et de Statistique, 9(1), pp. 47–70.Google Scholar
Palm, F.C. and Winder, CCA. [1990], Economic theory and structural time series models for aggregate consumption, Annales d’Economic et de Statistique, 18(1), pp. 25–44.Google Scholar
Pollak, R.A. [1970], Habit formation and dynamic demand functions, Journal of Political Economy, 78(4), pp. 745–763.Google Scholar
Sargent, T.J. [1979], Macroeconomic Theory, Academic Press, New York.Google Scholar
Stigler, G.J. and Becker, G.S. [1977], De gustibus non est disputandum, American Economic Review, 67(1), pp. 76–90.Google Scholar
Winder, CCA. and Palm, F.C. [1989], Intertemporal consumer behaviour under structural changes in income (with discussion), Econometric Reviews, 8(1), pp. 1–148.Google Scholar
Zeldes, S.P. [1989], Optimal consumption with stochastic income: Deviations from certainty equivalence, Quarterly Journal of Economics, 104(2), pp. 275–298.Google Scholar