The financial intermediary is shown to result from a market imperfection related to the costly monitoring of the actions of consumers. In such an environment complete insurance is not obtainable and consumers respond by holding some of their wealth as precautionary balances in order to...

Most households persistently invest in riskless assets but not stocks, and may do so because they perceive the information required for market participation to be costly relative to expected benefits. In a CCAPM, increased risk aversion, income risk, and lower resources reduce the information...

The literature on asset accumulation by households draws a sharp distinction between "short-run" precautionary motives to buffer annual consumption from annual labor income shocks, and "long-run" life cycle considerations under labor income certainty. However, empirical estimates of the...

Recent empirical work on the strength of precautionary saving has yielded widely varying conclusions. The mixed findings may reflect a number of difficulties in proxying uncertainty, executing instrumental variables estimation, and incorporating theoretical restrictions into empirical models....

In this paper household level data are used to explore whether unemployment risk is an important factor in the timing of consumers' durable goods purchase decisions. A theoretical model is presented in which both income uncertainty and household debt play a direct role, offering a potential...

This paper investigates the composition of households' assets and liabilities in the United States. Using aggregate and survey data, we document major trends in household portfolios in the past 15 years. We show that, despite the broad array of financial products available, the portfolio of the...

This paper studies the implications of information-processing limits on the consumption and savings behavior of households through time. It presents a dynamic model in which consumers rationally choose the size and scope of the information they want to process concerning their financial...

Because employer-provided pensions represent an important source of income during retirement, accurate information on pension coverage would seem to be crucial for making sound decisions on retirement timing, saving, and portfolio allocation. However, previous research suggests that workers'...

Psychological evidence indicates that a person's well-being depends not only on his current consumption of goods, but on a reference level determined by his past consumption. According to Kahneman and Tversky's (1979) prospect theory, people care much more about losses relative to their...

The economics literature offers competing hypotheses about the relationship between savings rates and output variability. This paper examines data for eight industrial countries to determine if there is a discernible pattern between savings rates and cyclical volatility of output. We find a...