SFB 303 Discussion Paper No. B - 10
Author: Weissenberger, E.
Title: The Life Cycle Hypothesis, Rational Expectations and Intertemporally Non-Separable Preferences
Abstract: In this paper the demand for non-durable and durable consumption is derived as the outcome of an
intertemporal optimisation problem. We find that consumption depends on the sum of non-human and
unobservable human wealth and that the imposition of the rational expectations assumption about human wealth
evaluation yields testable cross-equation restrictions. Strictly convex adjustment costs give dynamic demand
functions. Results based on UK time series data are presented. The cross-equations restrictions implied by a
weak version of the rational expectations hypotheseis cannot be rejected.
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