Consumption and Time Use over the Life Cycle

We incorporate home production in a dynamic general equilibrium model of consumption and saving with illiquid housing and a collateralized borrowing con-straint. We show that the model is capable of explaining life-cycle patterns of householdstime use and consumption of di¤erent categories (housing, home in-put, and market good) that we document from the micro data. A plausibly para-meterized version of our model predicts that the interaction of the labor e ¢ ciency pro le and the availability of home production technology explain householdstime use over the life cycle. The resulting income pro\u85les, the endogenous borrowing constraint and the presence of home production account for the initial hump in all three consumption goods. The consumption pro\u85les in the second half of the life cycle are mostly driven by the complementarity of home hours, home input, and housing in home production. The increasing use of home production is also partially responsible for the pronounced di¤erence between the life-cycle pro\u85les of consumption and expenditure