TY  - JOUR
AU  - Gourinchas,Pierre-Olivier
AU  - Parker,Jonathan A.
TI  - Consumption Over the Life Cycle
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7271
PY  - 1999
Y2  - July 1999
UR  - http://www.nber.org/papers/w7271
L1  - http://www.nber.org/papers/w7271.pdf
N1  - Author contact info:
Pierre-Olivier Gourinchas
Department of Economics
University of California, Berkeley
530 Evans Hall #3880
Berkeley, CA 94720-3880
Tel: 510/643-0720
Fax: 510/642-6615
E-Mail: pog@econ.berkeley.edu

Jonathan Parker
Finance Department
Kellogg School of Management
Northwestern University
2001 Sheridan Road
Evanston, IL  60208-2001
Tel: 847/491-4113
Fax: 847/491-5719
E-Mail: Jonathan-Parker@Kellogg.Northwestern.edu
AB  - This paper employs a synthetic cohort technique and Consumer Expenditure Survey data to construct average age-profiles of consumption and income over the working lives of typical households across different education and occupation groups. Using these profiles, we estimate a structural model of optimal life-cycle consumption expenditures in the presence of realistic labor income uncertainty.  The model fits the profiles quite well.  In addition to providing tight estimates of the discount rate and risk aversion, we find that consumer behavior changes strikingly over the life-cycle.  Young consumers behave as buffer-stock agents.  Around age 40, the typical household starts accumulating liquid assets for retirement, and its behavior mimics more closely that of a certainty equivalent consumer. This change in behavior is mostly driven by the life-cycle profile of expected income.  Our methodology provides a natural decomposition of saving into its precautionary and retirement components.
ER  -