Seminar: Computational Models of Consumption and Saving - CANCELLED

Course content

The purpose of the seminar is to apply computational methods for solving stochastic dynamic models of households’ consumption-saving behavior such as life-cycle models. For the seminar paper, students are expected to construct, numerically solve, and analyze a dynamic stochastic model of consumption-saving behavior with respect to a specific topic. The model should be inspired from the literature and appropriately simplified/modified. The focus of the analysis could, for example, be on buffer-stock saving in the face of income uncertainty, consumption responses to transitory and permanent income shocks, optimal saving for retirement and bequests, preference heterogeneity and wealth inequality, purchase of durables such as cars, labor supply and human capital accumulation, or housing and mortgage choice.


MSc programme of Economics
The seminar is primarily for students at the MSc of Economics

Learning outcome

At the end of the seminar, the students will be able to:

  • Solve simple stochastic dynamic consumption-saving models.
  • Simulate and analyze the policy implications of consumption-saving models.
  • Discuss the strengths and weaknesses of particular consumption-saving models.

The seminar will begin with three lectures in the beginning of September briefly introducing computational methods and the literature on consumption and saving. Sample code on how to solve stochastic dynamic consumption-saving models will be supplied. By the end of September, each participant must have a clear topic, presented in a commitment paper. In late November, we will have a workshop, where each participant presents his/her paper followed first by a discussion led by a discussant, and subsequently a general discussion. The teacher will assign discussants to the papers, and every participant must submit three relevant questions on all papers to the teacher prior to the workshop. The participant will have a short period to revise their paper after the workshop.

First meeting: September 5, 2016
Meeting time is made in agreement with the students.

Canonical consumption-saving literature:

  • Carroll, C.D., 2012. Theoretical Foundations of Buffer Stock Saving (Working Paper).
  • Carroll, C.D., 1997. Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis. The Quarterly Journal of Economics 112, 1–55.
  • Deaton, A., 1991. Saving and liquidity constraints. Econometrica 59, 1221–1248.


Examples of consumption-saving models:

  • Alan, S., Crossley, T., Low, H., 2012. Saving on a Rainy Day, Borrowing for a Rainy Day (IFS Working Paper W12/11).
  • Attanasio, O., Leicester, A., Wakefield, M., 2011. Do House Prices Drive Consumption Growth? The Coincident Cycles of House Prices and Consumption in the UK. Journal of the European Economic Association 9, 399–435.
  • Berger, D., Vavra, J., 2015. Consumption Dynamics During Recessions. Econometrica 83, 101–154.
  • Carroll, C.D., Slacalek, J., Tokuoka, K., White, M., 2014. The Distribution of Wealth and the Marginal Propensity to Consume.
  • Chambers, M., Garriga, C., Schlagenhauf, D.E., 2013. Did Housing Policies Cause the Postwar Boom in Home Ownership? NBER Working Paper 18821.
  • Fernandez-Villaverde, J., Krueger, D., 2011. Consumption and Saving over the Life Cycle: How important are durables? Macroeconomic Dynamics 15, 725–770.
  • French, E., Jones, J.B., 2011. The Effects of Health Insurance and Self-Insurance on Retirement Behavior. Econometrica 79, 693–732.
  • Imai, S., Keane, M.P., 2004. Intertemporal Labor Supply and Human Capital Accumulation. International Economic Review 45, 601–641.
  • Kaplan, G., Violante, G.L., 2014. A Model of the Consumption Response to Fiscal Stimulus Payments. Econometrica 82, 1199–1239.
  • Kaplan, G., Violante, G.L., 2010. How much consumption insurance beyond self-insurance? The American Economic Journal 2, 53–87.
  • Li, W., Liu, H., Yang, F., Yao, R., 2015. Housing over time and over the life cycle: a structural estimation (International Economic Review, forthcoming).
  • Luengo-Prado, M., 2006. Durables, nondurables, down payments and consumption excesses. Journal of Monetary Economics 53, 1509–1539.
  • McKay, A., 2015. Time-Varying Idiosyncratic Risk and Aggregate Consumption Dynamics (Working Paper).


Surveys of interest:

  • Browning, M., Crossley, T.F., 2001. The life-cycle model of consumption and saving. The Journal of Economic Perspectives 15, 3–22.
  • De Nardi, M.D., 2015. Quantitative Models of Wealth Inequality: A Survey (NBER Working Paper 21106).
  • De Nardi, M.D., French, E., Jones, J.B., 2015. Savings After Retirement: A Survey (NBER Working Paper 21268).
  • Heathcote, J., Storesletten, K., Violante, G.L., 2009. Quantitative Macroeconomics with Heterogeneous Households. Annual Review of Economics 1, 319–354.


​On numerical methods:

  • Adda, J., Cooper, R.W., 2003. Dynamic Economics: Quantitative Methods and Applications. MIT Press.
  • Judd, K.L., 1998. Numerical Methods in Economics. MIT Press.

BA in economics is required. Useful master’s level courses include: Dynamic Programming - Theory, Computation, and Empirical Applications, Advanced Microeconometrics, Computable General Equilibrium, Macro III, and Advanced Macroeconomics.

7,5 ECTS
Type of assessment
Written assignment
A written seminar paper in English
All aids allowed

Al aids for the written seminarpaper. 

Marking scale
7-point grading scale
Censorship form
External censorship
up to 20 % censorship at the seminarpaper
Criteria for exam assessment

The student must in a satisfactory way demonstrate that he/she has mastered the learning outcome of the course.

  • Category
  • Hours
  • Seminar
  • 6
  • Project work
  • 200
  • English
  • 206