This paper argues that the typical household's saving is better described by a buffer-stock 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 impatient...

Papers in a variety of disparate literatures have recently suggested that habit formation in consumption may explain several empirical puzzles ranging from the level and cyclical variability of the equity premium (Abel (19901999); Constantinides (1990); Jermann (1998); Campbell and Cochrane...

Since the foundational work of Keynes (1936) macroeconomists have emphasized the importance of agents' expectations in determining macroeconomic outcomes Yet in recent decades macroeconomists have devoted almost no effort to modeling actual empirical expectations data instead assuming all...

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 For...

Recent research has shown that 'rich' households save at much higher rates than others (see Carroll (2000); Dynan Skinner and Zeldes (1996); Gentry and Hubbard (1998); Huggett (1996); Quadrini (1999)) This paper documents another large difference between the rich and the rest of the population:...

Economists have long emphasized the importance of expectations in determining macroeconomic outcomes Yet there has been almost no recent effort to model actual empirical expectations data; instead macroeconomists usually simply assume expectations are rational This paper shows that while...