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Life-cycle consumption, precautionary saving, and risk sharing: an integrated analysis using household panel data

  • Seung C. Ahn , H. Youn Kim EMAIL logo and Tong Hee Kang
An erratum for this article can be found here:


This paper presents an integrated model of household consumption behavior and examines its testable implications for various theories of consumption, using panel data on Korean households. The model is framed with an extended Euler equation by incorporating aggregate/idiosyncratic and anticipated/unanticipated income changes with aggregate and idiosyncratic income risk measures. The model can test seven restricted but competing hypotheses such as life-cycle and precautionary saving with and without liquidity constraints, complete risk sharing, and incomplete risk sharing with and without precautionary saving. Each alternative hypothesis is rejected in favor of the integrated model to explain households’ consumption behavior in the panel.

JEL Classification: E21; D91


We thank the referees for helpful and constructive comments and suggestions that helped us to improve the paper. Thanks also go to Robert Pusinelli for comments on an earlier version of the paper.

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Published Online: 2017-7-20

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