Exposita Notes: Neoclassical Life-Cycle Consumption: A Textbook Example
Posted: 23 Sep 2001
We present a simple neoclassical life-cycle model in continuous time, in which the effects of endogenous labor supply, uncertain lifetime, and family composition on consumption and income profiles are jointly analyzed. Due to a parsimonious specification, analytical solutions for consumption growth are available for constant intertemporal elasticity of substitution preferences. Without relying on borrowing constraints, the model can generate a hump in the consumption profile, and a comovement of consumption and income during working life.
Keywords and Phrases: Life-cycle consumption profiles, Consumption-income correlation
JEL Classification: D91
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