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PRECAUTIONARY SAVING: A REVIEW OF THE EMPIRICAL LITERATURE
Author(s) -
Lugilde Alba,
Bande Roberto,
Riveiro Dolores
Publication year - 2019
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/joes.12284
Subject(s) - economics , consumption (sociology) , marginal utility , empirical research , macro , convexity , econometrics , precautionary savings , microeconomics , macroeconomics , financial economics , computer science , mathematics , social science , statistics , recession , sociology , programming language
Standard macroeconomic models show that uncertainty plays a significant role in consumption and saving decisions under rather mild conditions, namely the convexity of the marginal utility of consumption. Increased uncertainty generates a positive extra saving, the so‐called ‘precautionary saving’. Although this hypothesis has been tested by a large number of authors, both at macro and micro level, the empirical results are not conclusive, and the main conclusion than can be drawn is that there is neither consensus on the intensity of that motive for saving, nor on the most appropriate measure of uncertainty. This paper provides a comprehensive review of the empirical literature discussing the main controversial issues and the different approaches followed by the studies addressing empirically the test of precautionary saving.