Abstract

A well known result of empirical tests of the Life-Cycle hypothesis is that consumption appears "too sensitive" to the current level of income. When analysing this "excess sensitivity" problem - as it has been labelled in the literature - a possible confusion might arise because the words "excess sensitivity" often describe different phenomena, such as the response of consumption to "anticipated" and "unanticipated" income "shocks", to the "level" of income at time "t" or to its predictable "change". The aim of this survey is to illustrate the information about the different types of excess sensitivity obtained so far from the analysis of micro-data and the various explanations offered in the literature, highlighting the empirical evidence that supports each of them, as well as the theoretical and empirical implications of each explanation that have not received adequate attention.