Consumption Uncertainty and Precautionary Saving
Author(s) -
Dimitris Christelis,
Dimitris Georgarakos,
Tullio Jappelli,
Maarten van Rooij
Publication year - 2019
Publication title -
the review of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 8.999
H-Index - 165
eISSN - 1530-9142
pISSN - 0034-6535
DOI - 10.1162/rest_a_00819
Subject(s) - prudence , consumption (sociology) , economics , precautionary savings , econometrics , autonomous consumption , identification (biology) , risk aversion (psychology) , expected utility hypothesis , financial economics , market liquidity , monetary economics , debt , macroeconomics , social science , philosophy , botany , theology , biology , sociology
Using survey data from a representative sample of Dutch households, we estimate the strength of precautionary saving by eliciting subjective expectations on future consumption. Expected consumption risk is positively correlated with self-employment and income risk and negatively with age. We insert these subjective expectations (rather than consumption realizations, as in the existing literature) in an Euler equation for consumption and estimate the degree of prudence by associating expected consumption risk with expected consumption growth. Robust OLS and IV estimates indicate a coefficient of relative prudence of around 2. We obtain similar results via partial identification methods using weak assumptions.
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