Aggregate Consumption Behaviour in a Life Cycle Model with Non-Additive Recursive Utility

Empirical rejections of life cycle models of aggregate consumption are reviewed and an alternative specification is proposed. Observable implication of Euler equations are used to estimate parameters of the utility function using Generalized Method of Moments using monthly U.S. post-war data. The time-additivity restriction is rejected. The empirical results generally support the "increasing marginal impatience" hypothesis that posits an increasing relationship between the rate of time preference and steady-state consumption (or wealth).