We show that the optimal consumption of an individual over the life cycle can have the hump shape (inverted U-shape) observed empirically if the preferences of the individual exhibit internal habit formation. In the absence of habit formation, an impatient individual would prefer a decreasing...

I propose an intertemporal precautionary saving model in which the agent's labor income is subject to (possibly correlated) shocks with different degrees of persistence and volatility. However, he only observes his total income, not individual components. I show that partial observability of...

This paper studies the concavity of the consumption function of a habit-forming consumer with convex absolute risk tolerance. Habit formation is incorporated into a finite-horizon consumption-saving model of Carroll and Kimball (1996). I derive a condition under which the consumption function is...

This paper uses a dataset from one of the largest credit card issuers in Brazil to investigate the extent of credit constraints for one of the world's largest emerging market economies. In order to deal with the endogeneity problem from an observational dataset, an identification strategy based...

Unemployment causes significant losses in the quality of life. In addition to reducing individual income, it also creates non-pecuniary, psychological costs. We quantify these non-pecuniary losses by using the life satisfaction approach. In contrast to previous studies, we apply Friedman's...

This paper applies the methods of Detemple, Garcia, and Rindisbacher (2003, 2005) and derives explicit optimal lifetime consumption-portfolio plans in an economy whose fixed-income sector is characterized by an N-factor Heath-Jarrow-Morton (1992) model that is Markovian in 3N state variables

I propose an intertemporal precautionary-saving model in which the agent's labor income is subject to both permanent and transitory shocks. However, he only observes his total income, not individual components. I show that partial observability of individual components of income gives rise to...

This paper focuses on the role of habit formation in individual preferences over consumption and saving. We closely relate to Alessie and Lusardi's (1997) model as we estimate a model which is based on their closed-form solution, where saving is expressed as a function of lagged saving and other...

This paper presents a model where aggregate consumption depends on both the level of wealth and the age structure of population. The explicit consideration of an endogenous rate of time preference permits to analyze the important role of population ageing as a determinant of aggregate saving

The permanent-income hypothesis (PIH) of Milton Friedman (1957) states that the agent saves in anticipation of possible future declines in labor income (John Y. Campbell, 1987). He also saves for precautionary reasons, and dissaves because of impatience. To justify the PIH in an intertemporal...