Why are there such large differences in saving rates across countries? Conventional economic analyses have not been successful in explaining international saving differences, so economists have sometimes suggested that national saving differences may be explained by cultural differences. This...

This paper shows that standard empirical methods for estimating log-linearized consumption Euler equations cannot successfully uncover structural parameters like the coefficient of relative risk aversion from a dataset of simulated consumers behaving exactly according to the standard model...

This paper compares the dynamics of two general equilibrium models of endogenous growth in which agents have comparison utility In the inward-looking economy individuals care about how their consumption in the current period compares to their own consumption in the past (one way to describe this...

This paper examines the relationship between household balance sheets consumer purchases and expectations We find robust empirical relationships between balance sheet measures and spending but we do find that unemployment expectations are robustly correlated with spending We then construct a...

The budget constraint requires that, eventually, consumption must adjust fully to any permanent shock to income. Intuition suggests that, knowing this, optimizing agents will fully adjust their spending immediately upon experiencing a permanent shock. However, this paper shows that if consumers...

This paper considers several alternative explanations for the fact that households with higher levels of lifetime income have higher lifetime saving rates (Dynan Skinner and Zeldes (1996); Lillard and Karoly (1997)) The paper argues that the saving behavior or the richest households cannot be...

This paper provides derivations necessary for solving an optimal consumption problem with multiplicative habits and a CRRA 'outer' utility function either for a microeconomic problem with both labor income risk and rate-of-return risk or for a macroeoconomic representative agent model

Economists working with numerical solutions to the optimal consumption/saving problem under uncertainty have long known that there are quantitatively important interactions between liquidity constraints and precautionary saving behavior This paper provides the analytical basis for those...

The standard approach to modelling consumption/saving problems is to assume that the decisionmaker is solving a dynamic stochastic optimization problem However under realistic descriptions of utility and uncertainty the optimal consumption/saving decision is so difficult that only recently...