TESTS OF THE PERMANENT INCOME LIFE-CYCLE HYPOTHESIS BASED ON HOUSEHOLD-LEVEL PANEL-DATA FROM KOREA

We use household-level monthly panel data from Korea to study the mont hly change in consumption. We believe the Korean data will produce bet ter estimates than most consumption data: the survey methods apparentl y produced good measures of total household expenditures as judged by a comparison with aggregate totals; furthermore, because almost all sa ving in Korea takes place at the household level, rather than through pensions or Social Security, the saving rate can be accurately calcula ted. We fit directly, both parametrically and nonparametrically, the f irst-order condition on consumption derived from intertemporal utility maximization. We find that consumption increases with age until middl e age, and then falls as would be required by the life-cycle hypothesi s, and that, conditional on an outside measure of risk aversion, the s ubjective time rate of discount is within reasonable bounds. (C) 1997 Academic Press.