Life-cycle consumption, precautionary saving, and risk sharing: An integrated analysis using household panel data

Seung Ahn, H. Youn Kim, Tong Hee Kang

Research output: Contribution to journalArticle

Abstract

This paper presents an integrated model of household consumption behavior and examines its testable implications for various theories of consumption, using panel data on Korean households. The model is framed with an extended Euler equation by incorporating aggregate/idiosyncratic and anticipated/unanticipated income changes with aggregate and idiosyncratic income risk measures. The model can test seven restricted but competing hypotheses such as life-cycle and precautionary saving with and without liquidity constraints, complete risk sharing, and incomplete risk sharing with and without precautionary saving. Each alternative hypothesis is rejected in favor of the integrated model to explain households' consumption behavior in the panel.

Original languageEnglish (US)
Article number20160082
JournalB.E. Journal of Macroeconomics
Volume17
Issue number2
DOIs
StatePublished - Jun 1 2017

Keywords

  • Household panel data
  • Life-cycle consumption
  • Liquidity constraints
  • Precautionary saving
  • Risk sharing

ASJC Scopus subject areas

  • Economics and Econometrics

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