A Leisurely Reading of Lifecycle Consumption Data

Document Type

Article

Journal/Book Title/Conference

Journal of Monetary Economics

Volume

54

Publication Date

2007

First Page

2305

Last Page

2320

Abstract

A puzzle in consumption theory is the observation of a hump in age–consumption profiles. This paper studies a general equilibrium life-cycle economy with capital in which households include both consumption and leisure in their period utility function. A calibrated version of the model shows that a significant hump in life-cycle consumption is a feature of the equilibrium. Thus inclusion of leisure in household preferences may provide part of the explanation of observed life-cycle consumption humps.

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