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...

Economists working with numerical solutions to the optimal consumption/saving problem under uncertainty have long known that there are quantitatively important interactions between liquidity constraints and precautionary saving behavior This paper provides the analytical basis for those...

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...

This paper tests a straightforward implication of the basic life cycle model of consumption: that current consumption depends on expected lifetime income. The paper projects future income for a panel of households and finds that consumption is closely related to projected current income but...

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...

This paper considers several alternative explanations for the fact that households with higher levels of lifetime income have higher lifetime saving rates (Dynan Skinner and Zeldes (1996); Lillard and Karoly (1997)) The paper argues that the saving behavior or the richest households cannot be...