A Re-examination of the Validity of the Life Cycle Hypothesis (LCH): Evidence from Emerging Europe

The study aims to empirically explore the dependence of savings behavior on
demographic changes in the context of the life cycle hypothesis (LCH) in a
sample of 18 European transition and post-transition countries. The empirical
methodology is based on a multifactor modeling approach. The research estimates
heterogeneous panel data models by employing three different heterogeneous
coefficient estimators: mean group (MG) estimator, common correlated effects
mean group (CCEMG) estimator, and augmented mean group (AMG) estimator.
The findings demonstrate that the LCH is confirmed in the case of European
post-transition countries and rejected as inappropriate in European transition
countries due to inconsistency of regression coefficients (age dependency,
unemployment rate, urbanization, and health expenditure). The models and their findings
presented in this study can be used in policymaking to predict
dynamic interactions and variations among selected demographic variables in the
determination of savings behavior.