Hyperbolic discounting is not observationally equivalent to exponential discounting. It is always possible to calibrate an exponential model so that it predicts the same level of consumption as a hyperbolic model. However, the two models have radically different comparative statics.

This letter develops a set of simple conditions under which an individual is willing to save an extra amount of money due to the presence of ambiguity concerning his second period wealth. This extra precautionary saving motive is naturally associated with the notion of ambiguity prudence.

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...

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 aims to test the microfoundations of consumption models and quantify the macro implications of heterogeneity in consumption behavior. We propose a new empirical method to estimate the sensitivity of consumption to permanent and transitory income shocks for different groups of...

This paper decomposes the sources of risk to income that individuals face over their lifetimes. We distinguish productivity risk from employment risk and identify the components of each using the Survey of Income and Program Participation and the Panel Study of Income Dynamics. Estimates of...