This course provides an overview of the research on saving and consumption.
Students will be familiar with consumption-saving decisions in a stochastic environment. Since the marginal propensity to consume (MPC) matters for the propagation of macro shocks and the effects of fiscal and monetary policies, we focus on the determinants of MPC --- out of anticipated income change, and unexpected transitory or permanent income change. Another focus is on the link between models and data. Students will learn to derive testable implications of different consumption models and know how the literature evaluate models with empirical findings.
Tentative outlines of topics:
1. Intertemporal model with certainty: from finite horizon to infinite horizon
2. Evaluate lifecycle saving motive and intertemporal saving motive from the age profile of consumption and wealth
3. Intertemporal model with uncertainty: complete market
4. Test of complete markets
5. Intertemporal model with uncertainty: certainty equivalence model and precautionary saving model
6. Other topics: liquidity constraints, mortality risk, intergenerational transfers, habits.
7. A life-cycle general equilibrium model