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An Analysis of Postwar U.S. Consumption and Saving: Part I -- The Model and Aggregation

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  • Michael J. Boskin
  • Lawrence J. Lau
Abstract
A new empirical analysis of aggregate United States consumption and saving for the period 1947-80 is presented. The model is based on the theory of exact aggregation. It recognizes explicitly that households with different characteristics may be heterogeneous in their behavior and that aggregate behavior may depend on the changing composition of households by characteristics and therefore may not be adequately portrayed by a representative consumer, but otherwise it imposes minimal assumptions on household behavior. The model integrates longitudinal and cross-sectional microeconomic data on household characteristics with the traditional aggregate time-series data. Various hypotheses on consumption, such as age independence, proportionality to wealth, and price independence, are tested and rejected. Strong evidence of relative price effects and a systematic variation of aggregate consumption with changing age distribution of wealth in the economy is found. Especially important is the substantial estimated difference in the shares of wealth consumed between households headed by persons born prior to and those born after 1939. One important lesson from this study is that modeling the aggregate U. S. economy as a representative consumer may give rise to misleading results.

Suggested Citation

  • Michael J. Boskin & Lawrence J. Lau, 1988. "An Analysis of Postwar U.S. Consumption and Saving: Part I -- The Model and Aggregation," NBER Working Papers 2605, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2605
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    Cited by:

    1. Jagadeesh Gokhale & Laurence J. Kotlikoff & John Sabelhaus, 1996. "Understanding the Postwar Decline in U.S. Saving: A Cohort Analysis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 315-407.
    2. Halvorsen, Elin, 2003. "A Cohort Analysis of Household Saving in Norway," Memorandum 36/2002, Oslo University, Department of Economics.
    3. Elin Halvorsen, 2003. "A Cohort Analysis of Household Saving in Norway," Discussion Papers 354, Statistics Norway, Research Department.
    4. Jagadeesh Gokhale & Laurence J. Kotlikoff & John Edward Sabelhaus, 1995. "Understanding the postwar decline in United States saving: a cohort analysis," Working Papers (Old Series) 9518, Federal Reserve Bank of Cleveland.
    5. James Obben & Monique Waayer, 2011. "New Zealand's old‐age pension scheme and household saving," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 38(9), pages 767-788, August.

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