Using data from the Consumer Expenditure Survey, we first document that the recent increase in income inequality in the United States has not been accompanied by a corresponding rise in consumption inequality. Much of this divergence is due to different trends in within-group inequality, which has increased significantly for income but little for consumption. We then develop a simple framework that allows us to analytically characterize how within-group income inequality affects consumption inequality in a world in which agents can trade a full set of contingent consumption claims, subject to endogenous constraints emanating from the limited enforcement of intertemporal contracts (as in Kehoe and Levine, 1993). Finally, we quantitatively evaluate, in the context of a calibrated general equilibrium production economy, whether this setup, or alternatively a standard incomplete markets model (as in Aiyagari, 1994), can account for the documented stylized consumption inequality facts from the U.S. data.

In a model with housing collateral, the ratio of housing wealth to human wealth shifts the conditional distribution of asset prices and consumption growth. A decrease in house prices reduces the collateral value of housing, increases household exposure to idiosyncratic risk, and increases the conditional market price of risk. Using aggregate data for the US, we find that a decrease in the ratio of housing wealth to human wealth predicts higher returns on stocks. Conditional on this ratio, the covariance of returns with aggregate risk factors explains eighty percent of the cross-sectional variation in annual size and book-to-market portfolio returns. 1

This paper uses Consumer Expenditure Survey data and a seminonparametric statistical model to estimate life-cycle profiles of consumption, controlling for demographics, cohort, and time effects. We construct age profiles for total and nondurable consumption as well as expenditure patterns for consumer durables. Special emphasis is placed on the comparison of different approaches to control for changes in demographics over the life cycle. We find significant humps over the life cycle for total, nondurable, and durable expenditures. Changes in household

We present an equilibrium life-cycle model of housing where nonconvex adjustment costs lead households to adjust their housing choice infrequently and by large amounts when they do so. In the cross-sectional dimension, the model matches the wealth distribution, the age profiles of consumption, homeownership, and mortgage debt, and data on the frequency of housing adjustment. In the time-series dimension, the model accounts for the procyclicality and volatility of housing investment, and for the procyclical behavior of household debt. We use a calibrated version of our model to ask the following question: what are the consequences for aggregate volatility of an increase in household income risk and a decrease in downpayment requirements? We distinguish between an early period, the 1950s through the 1970s, when household income risk was relatively small and loan-to-value ratios were low, and a late period, the 1980s through today, with high household income risk and high loan-to-value ratios. In the early period, precautionary saving is small, wealth-poor people are close to their maximum borrowing limit, and housing investment, homeownership and household debt closely track aggregate productivity. In the late period, precautionary saving is larger, wealth-poor people borrow less than the maximum and become more cautious in response to aggregate shocks. As a consequence, the

This paper studies consumption and labor supply in a model where agents have partial insurance and face risk and initial heterogeneity in wages and preferences. Equilibrium allocations and variances and covariances of wages, hours and consumption are solved for analytically. We prove that all parameters of the structural model are identified given panel data on wages and hours, and crosssectional data on consumption. The model is estimated on US data. Second moments involving hours and consumption show that the rise in wage dispersion in the 1970s was effectively insured by households, while the rise in the 1980s was not.

This paper uses a seminonparametric model and Consumer Expenditure Survey data to estimate life cycle profiles of consumption, controlling for demographics, cohort and time effects. In addition to documenting profiles for total and nondurable consumption, we devote special attention to the age expenditure pattern for consumer durables. We find hump-shaped paths over the life cycle for total, for nondurable and for durable expenditures. Changes in household size account for roughly half of these humps. The other half remains unaccounted for by the standard complete markets life cycle model. Our results imply that households do not smooth consumption over their lifetimes. This is especially true for services from consumer durables. Bootstrap simulations suggest that our empirical estimates are tight and sensitivity analysis indicates that the computed profiles are robust to a large number of different specifications.

Micro data over the life cycle shows different patterns of consumption for housing and non-housing goods: the consumption profile of non-housing goods is hump-shaped while the consumption profile for housing first increases monotonically and then flattens out. These patterns hold true at each consumption quartile. This paper develops a quantitative, dynamic general equilibrium model of life-cycle behavior, which generates consumption profiles consistent with the observed data. Borrowing constraints are essential in explaining the accumulation of housing assets early in life, while transaction costs are crucial in generating the slow downsizing of the housing assets later in life.

We quantitatively analyze the welfare implications of different consumer bankruptcies rules. We look at a dynamic life cycle model where households face idiosyncratic uncertainty. Bankruptcy rules vary in two dimensions: whether discharge of debt is granted to borrowers on demand (fresh start) and the fraction of income garnished from defaulters. We find that the welfare comparison depends critically upon the nature and magnitude of income and expenses uncertainty.

We study a two-sector general equilibrium model of housing and non-housing production where heterogeneous households face limited opportunities to insure against aggregate and idiosyncratic risks. The model generates large variability in the national house price-rent ratio, both because it ‡uctuates endogenously with the state of the economy and because it rises in response to a relaxation of credit constraints and decline in housing transaction costs (financial market liberalization). These factors, together with a rise in foreign ownership of U.S. debt calibrated to match the actual increase over the period 2000-2006, generate an

We estimate a structural model of optimal life-cycle housing and consumption in the presence of realistic labor income and house price uncertainties. The model postulates constant elasticity of substitution between housing service and nonhousing consumption, and explicitly incorporates a house adjustment cost. Our estimation fits the crosssectional and time-series household wealth and housing profiles from the Panel Study of Income Dynamics quite well, and suggests an intra-temporal elasticity of substitution between housing and nonhousing consumption of 0.33 and a housing adjustment cost that amounts to about 15 percent of house value. Policy experiments with estimated preference parameters imply that households respond nonlinearly to house price changes with large house price declines leading to sizable decreases in both the aggregate homeownership rate and aggregate non-housing consumption. The average marginal propensity to consume out of housing wealth changes ranges from 0.4 percent to 6 percent. When lending conditions are tightened in the form of a higher down payment requirement, interestingly, large house price declines result in more severe drops in the aggregate homeownership rate but milder decreases in nonhousing consumption. Key Words: Life-cycle, housing adjustment costs, intratemporal substitution, methods of simulated moments