UC Berkeley

In this dissertation, I explore the consumption smoothing behavior of households. A key problem at the core of much of economics is how households allocate consumption over time and across states of the world: Do they borrow in lean times and save in good times? Do they save when young and dis-save when old? Do they account for future changes in income and adjust consumption right away? Studying consumption behavior at retirement and delinquencies during unemployment, I find that households cut their consumption substantially at the onset of retirement and that the sensitivity of delinquencies to unemployment appears to mostly be driven by a lack of liquidity during unemployment. Together, these results suggest that households exhibit a large degree of sensitivity to current income, a component largely ignored by state-of-the-art consumption models.