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Precautionary Saving and the Marginal Propensity to Consume Out of Permanent Income

Carroll, Christopher D. - 2010

The budget constraint requires that, eventually, consumption must adjust fully to any permanent shock to income. Intuition suggests that, knowing this, optimizing agents will fully adjust their spending immediately upon experiencing a permanent shock. However, this paper shows that if consumers...

Persistent link: https://www.econbiz.de/10013151558

Risk Sharing in Private Information Models with Asset Accumulation : Explaining the Excess Smoothness of Consumption

Attanasio, Orazio - 2010

We derive testable implications of model in which first best allocations are not achieved because of a moral hazard problem with hidden saving. We show that in this environment agents typically achieve more insurance than that obtained under autarchy via saving, and that consumption allocation...

Persistent link: https://www.econbiz.de/10012760291

Saving and Liquidity Constraints

Deaton, Angus - 2010

This paper is concerned with the theory of saving when consumers are not permitted to borrow, and with the ability of … such a theory to account for some of the stylized facts of saving behavior. When consumers are relatively impatient, and …

Persistent link: https://www.econbiz.de/10012763409

Does Saving Anticipate Declining Labor Income? an Alternative Test of the Permanent Income Hypothesis

Campbell, John Y. - 2021

The permanent income hypothesis implies that people save because they rationally expect their labor income to decline; they save "for a rainy day". It follows that saving should be at least as good a predictor of declines in labor income as any other forecast that can be constructed from publicly...

Persistent link: https://www.econbiz.de/10013224398

A Theory of the Consumption Function, with and Without Liquidity Constraints (Expanded Version)

Carroll, Christopher D. - 2021

This paper argues that the modern stochastic consumption model, in which impatient consumers face uninsurable labor income risk, matches Milton Friedman's (1957) original description of the Permanent Income Hypothesis much better than the perfect foresight or certainty equivalent models did. The...

Persistent link: https://www.econbiz.de/10013225387

Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis

Carroll, Christopher D. - 2021

This paper argues that the typical household's saving is better described by a "bufferstock" version than by the traditional version of the Life Cycle/Permanent Income Hypothesis (LC/PIH) model. Buffer-stock behavior emerges if consumers with important income uncertainty are sufficiently...

Persistent link: https://www.econbiz.de/10013231421

How Important is Precautionary Saving?

Carroll, Christopher D.; Samwick, Andrew A. - 2021

We estimate the fraction of the wealth of a sample of PSID respondents that is held because some households face greater income uncertainty than others. We first derive an equation characterizing the theoretical relationship between wealth and uncertainty in a buffer-stock model of saving. Next,...

Persistent link: https://www.econbiz.de/10013240630

The Nature of Precautionary Wealth

Carroll, Christopher D.; Samwick, Andrew A. - 2021

This paper uses the Panel Study of Income Dynamics to provide some of the first direct evidence that wealth is systematically higher for consumers with greater income uncertainty. However, the apparent pattern of precautionary saving is not consistent with a standard parameterization of the life...

Persistent link: https://www.econbiz.de/10013240957

Intergenerational Transfers and Savings

Kotlikoff, Laurence J. - 2021

savings? Is it primarily accumulation for retirement as claimed by Albert Ando, Richard Brumberg, and Franco Modigliani in … their celebrated Life Cycle Model of Savings? Is it primarily intentional accumulation for intergenerational transfers? Or … is it primarily precautionary savings, much of which may be bequeathed because of imperfections in annuity markets? This …

Persistent link: https://www.econbiz.de/10013247420

Dissaving by the Elderly, Transfer Motives and Liquidity Constraints

Ando, Albert; Guiso, Luigi; Terlizzese, Daniele - 2021

Two explanations have been proposed for the observed slowness of wealth decumulation by the elderly in the literature: the precautionary saving induced by (uninsurable) uncertainty about the time of death or by the possibility of major catastrophes in old age that require large outlays; the...

Persistent link: https://www.econbiz.de/10013310140

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