Course Outline
The course provides students with an introduction to how consumption and saving decisions can be anlaysed using the framework of the lifecycle model. Identifying effects of incentives
within such a framework, and/or pinning down the values of underlying model parameters, are problems that different authors have tackled using reduced‐form empirical approaches and using structural economic modeling. The course aims to introduce students to both types of technique, and to their respective advantages and disadvantages.
Course Content
Topic 1: (1 to 2 sessions)
1.1 Background
1.2 The Lifecycle Model: some analytics
Topic 2: (1 to 2 sessions)
2. The Structural Approach: Solving and simulating the model
We will carefully read:
Deaton, Angus, (1991), “Saving and Liquidity Constraints”, Econometrica 59(5), 1221‐1248.
Emphasis on the methodological aspects of this paper: how the model is manipulated, how the solution and simulation algorithm can be set up.
Having understood principles, we will look at where these techniques have been applied in more recent literature.
Topic 3: (1 to 2 sessions)
3. Reduced Form Approaches
We will briefly discuss estimating the Euler Equation
That is, estimating the consumption growth equation, which is a log‐linear approximisation to the Euler equation. We will discuss limitations to this approach.
The course will conclude with summing up, and student evaluation (via a written exam or task).
Some References
A fuller list of references will be provided to students that take the course. The references listed here could be useful to provide an idea of the themes of the course.
Topic 1
Attanasio, Orazio P., 1999, “Consumption”, in J. B. Taylor & M. Woodford (eds.), Handbook of Macroeconomics, edition 1, volume 1, chapter 11, pages 741‐812, Elsevier.
Carroll, Christopher D. (2001), “A Theory of the Consumption Function, With and Without Liquidity Constraints.” Journal of Economic Perspectives 15(3):23–46.
Carroll, Christopher D., Theoretical Foundations of Buffer Stock Saving, http://www.econ2.jhu.edu/people/ccarroll/papers/BufferStockTheory.pdf
Topic 2
Deaton, Angus, (1991), “Saving and Liquidity Constraints”, Econometrica 59(5), 1221‐1248
Topic 3
Attanasio, O. P and G. Weber (1993), Consumption Growth, the Interest Rate and Aggregation, Review of Economic Studies, 60: 631‐49
Attanasio, O. P., Agnes Kovacs and Krisztina Molnar (2020), Euler Equations, Subjective Expectations and Income Shocks, Economica, 87, 406‐441, doi:10.1111/ecca.12318
Attanasio, O. P. and H. Low (2004), Estimating Euler Equations, Review of Economic Dynamics, 7: 406‐435
Carroll, Christopher D. (2001) “Death to the Log‐Linearized Consumption Euler Equation! (And Very Poor Health to the Second‐Order Approximation)”, Advances in Macroeconomics: Vol. 1: No. 1, Article 6 (http://www.econ2.jhu.edu/people/ccarroll/death.pdf)