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The Empirical Failure of the Life Cycle Model with Perfect Capital Markets

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  • Pemberton, James
Abstract
This paper calibrates a life cycle model which incorporates standard assumptions, similar to those in F. Modgliani's (1986) 'stripped down' version, including perfect capital markets. The resulting model generates strongly counterfactual predictions: planned wealth is negative for all or most of life, following a W-shaped rather than a hump-shaped profile. (Equivalently, the debt profile is M-shaped.) The paper argues that introducing capital market imperfections can resolve many of the problems, though some issues remain, and further research is warranted. Copyright 1997 by Royal Economic Society.

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  • Pemberton, James, 1997. "The Empirical Failure of the Life Cycle Model with Perfect Capital Markets," Oxford Economic Papers, Oxford University Press, vol. 49(2), pages 129-151, April.
    • Handle: RePEc:oup:oxecpp:v:49:y:1997:i:2:p:129-51
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    Cited by:

    1. Pemberton, James, 1999. "Social Security: National Policies with International Implications," Economic Journal, Royal Economic Society, vol. 109(457), pages 492-508, July.
    2. Andrew Benito, 2002. "Does Job Insecurity Affect Household Consumption?," Working Papers 0225, Banco de España.
    3. Rossi, Mariacristina, 2005. "Households’ Consumption under the Habit Formation Hypothesis. Evidence from Italian Households using the Survey of Household Income and Wealth (SHIW)," Economics Discussion Papers 8886, University of Essex, Department of Economics.

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