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Title: |
Birth, Death, and Consumption: Overlapping Generations and the Random
Walk Hypothesis |
| Author: |
Smith, William
T. |
| Author
Affiliation: |
U Memphis |
| Source: |
International Economic Journal, Winter 1998, v. 12, no. 4, pp. 105-116 |
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Publication Date: |
Winter 1998 |
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Abstract: |
This paper studies the time-series
behavior of consumption in a model that incorporates birth, death, and a
precautionary motive for saving. Consumption of an individual agent is a
random walk. However, aggregate consumption is a random walk if and only
if the sum of the death rate and population growth rate is zero. Failure
of the random walk hypothesis should not be attributed to finite
horizons per se, but rather to inter-generational transfers caused by
birth and death. Unlike certainty-equivalent models, the expected growth
of consumption depends on financial wealth, rather than wage income or
human capital. |
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