Consumption and Time Use Over the Life Cycle

47 Pages Posted: 1 Dec 2010

See all articles by Michael Dotsey

Michael Dotsey

Federal Reserve Bank of Philadelphia

Wenli Li

Federal Reserve Bank of Philadelphia

Fang Yang

Louisiana State University, Baton Rouge

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2010

Abstract

The authors incorporate home production in a dynamic general equilibrium model of consumption and saving with illiquid housing and a collateralized borrowing constraint. They show that the model is capable of explaining life-cycle patterns of households' time use and consumption of different categories. Specifically, households' market hours and home hours are fairly stable early in the life cycle. Market hours start to decline sharply at age 50, while home hours begin to increase at age 55. Households' consumption of the market good, home input, and housing services all exhibit hump shapes over the life cycle, with the market good having the most pronounced hump, followed by the home input, and then housing services. A plausibly parameterized version of the authors' model predicts that the interaction of the labor efficiency profile and the availability of home production technology explain households' time use over the life cycle. The resulting income profiles, the endogenous borrowing constraint and the presence of home production account for the initial hump in all three consumption goods. The consumption profiles in the second half of the life cycle are mostly driven by the complementarity of home hours, home input, and housing in home production.

Keywords: Consumption, Home Production, Life Cycle

JEL Classification: D13, E21, J22

Suggested Citation

Dotsey, Michael and Li, Wenli and Yang, Fang, Consumption and Time Use Over the Life Cycle (November 1, 2010). FRB of Philadelphia Working Paper No. 10-37. Available at SSRN: https://ssrn.com/abstract=1718487 or http://dx.doi.org/10.2139/ssrn.1718487

Michael Dotsey (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
804-697-8201 (Phone)
804-697-8255 (Fax)

Wenli Li

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Fang Yang

Louisiana State University, Baton Rouge ( email )

Baton Rouge, LA 70803
United States

HOME PAGE: http://faculty.bus.lsu.edu/fyang/

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