A Leisurely Reading of Lifecycle Consumption Data
Journal of Monetary Economics
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.
Bullard, James and James A. Feigenbaum, (2007), “A Leisurely Reading of Lifecycle Consumption Data,” Journal of Monetary Economics 54: 2305-2320.