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Consumption Habits and Humps
We show that the optimal consumption of an individual over the life cycle can have the hump shape (inverted U-shape) observed empirically if the preferences of the individual exhibit internal habit formation. In the absence ...
Consumption and Wage Humps in a Life-Cycle Model with Education
The observed hump-shaped life-cycle pattern in individuals’ consumption cannot be explained by the classical consumption-savings model. The consensus explanation is that the hump is caused by constraints and unspanned ...
Housing Habits and Their Implications for Life-Cycle Consumption and Investment
We solve a rich life-cycle model of household decisions involving consumption of perishable goods and housing services, habit formation for housing consumption, stochastic labor income, stochastic house prices, home renting ...