Demographic Effects and the Multiperiod Consumption Function.

Past empirical studies of the aggregate-consumption function have often assumed constancy of the age distribution of the population. This paper relaxes that assumption by specifying a multiperiod-consumption function which introduces age-distribution parameters explicitly into the model. This is accomplished by specifying a multiperiod constant-elasticity-of-substitution (CES) type utility function where the consumer's time horizon is determined by various age-distribution parameters such as median age, retirement age, etc. The proportion of lifetime income spent on current consumption is shown to depend on the rate of interest, the age-distribution parameters, and the parameters of the utility function. Lifetime income, in turn, depends on the interest rates and age parameters. The model, which is nonlinear, is estimated using annual data from 1948 to 1965. The effects of changes in interest rates and age parameters are assessed, and a prediction-interval test is applied to the model. [ABSTRACT FROM AUTHOR]