Testing the Life Cycle Model of Consumption: What Can We Learn From Micro and Macro Data?

Abstract

In this paper we analyze the implicaions of the life cyrcle model for consumption and consider the possibility of testing the model using macro and micro data. We conclude that the implications of the model cannot be tested with macro data, whose analysis, however, is useful for forecats. We provide some evidence from US and UK micro datasets which shows that the life cycle model, at a first glance, is not unconsistent with tha data.