In this paper a new consumption function is derived based on savings motive hypothesis (SMH). The major theory behind the SMH is that households save part of their income in period 1 and transfer it to period 2. Implying that consumption in period 1 is the addition of autonomous consumption and...

In this paper, we document that households’ consumption expenditures depend on their expected earnings - even after controlling for realized earnings and wealth. To explain this evidence, we develop and structurally estimate a standard-incomplete markets model in which rational households...