Precautionary Saving

This paper presents evidence on the resources available to households as they enter retirement. It draws heavily on data collected by the Health and Retirement Study and calculates the "potential additional annuity income" that households could purchase, given their holdings of non-annuitized financial assets at the start of retirement. Even if households used all of their financial assets inside and

We simulate a buffer stock model of consumption at the individual level, aggregate, and estimate regressions on the aggregated (simulated) data. Regressions of consumption on current (or lagged) disposable labor income—using the simulated data—are used to predict the marginal effect of changing persistence of income shocks or changing aggregate uncertainty (variously defined). Next we estimate a time series model—using observed data—for aggregate disposable labor income for each state. The model allows for varying degrees of persistence and for varying degrees of aggregate uncertainty across states. Finally, we estimate aggregate regressions of consumption on current (or lagged) income, allowing the slope in these regression to depend on persistence and or measures of uncertainty. We find that the effect of persistence very strongly corresponds to that predicted from the model, while the impact of our aggregate measures of uncertainty matches the theoretical model less well

Abstract: This paper examines the extent to which consumption in Russian households responds to exogenous income shocks. During the time period studied in this paper (1994? 1998), Russia experienced two major economic crises. Both featured extreme movements ...

This article estimates marginal propensities to consume (MPC) out of current and lagged income for U.S. states using panel data regressions that control for time-specific and state-level fixed effects. The MPCs vary across states, in particular, the MPC out of current income is higher in states where income is more persistent and the MPC out of lagged income is lower

This paper examines coping strategies in response to covariate flood shocks and idiosyncratic health shocks among riverine peasant households in the Amazonian tropical forests. An assessment of coping strategies reveals that although precautionary savings (food stock and livestock) are important for both types of shocks, ex post labor supply responses in the form of upland cropping and resource extraction (fishing and non-timber forest product gathering) are more common to cope with the flood shock depending on local environments. A bivariate probit model examines what factors shape households' adoption decisions of gathering and fishing as a coping strategy. The analysis reveals an important insurance role of non-timber forest product gathering for the asset poor who have limited options for coping with flood risk. Targeted interventions and programs for the poor to promote sustainable forest resource use are discussed.

We compare the “New Consensus” (NC) in macroeconomics as expounded in Woodford (2003) and the Post-Keynesian (PK) approach regarding the causes of a “liquidity trap” (LT). We argue that in the NC approach a LT is a phenomenon caused by unusually large transitory shocks that depress the “neutral” interest rate temporarily. By contrast, in the PK approach, the economy may

This paper examines the effects of households’ shocks on saving behaviour. It investigates the possibility that households save ex ante to buffer against adverse weather and health shocks. The relatively high prevalence rate of HIV/AIDS in Kenya combined with rain fed agriculture implies great uncertainty for rural livelihoods. Adopting a methodology previously used on cross-sectional data (Paxson, 1992), the paper examines the level of households precautionary behaviour. This is done by estimating the marginal propensity to save out of transitory income over a period of 18 months. The results show that while households may exhibit some level of prudence, the marginal propensity to save out of transitory income is about a third of what the permanent income hypothesis postulates. Seasonality influences prudence behaviour, with stressful seasons likely to depress substantially the level of precautionary saving. The presence of HIV/AIDS illness lowers savings and raises per capita cons...

The potential importance of the precautionary motive for saving has been noted in many studies during the last decades. This paper examines the determination of precautionary saving when people have access to intra-family risk sharing. I show that, with uncertain future income, altruism per se can induce time consistent, however, not necessarily ex ante efficient, risk sharing between risk averse

Farm risk management for income stabilization is on-going issue. An applied work has been performed to measure farm risk using a stochastic model. Risk management tools, with symmetric as well as asymmetric impacts, are then tested and compared through ad hoc statistics. Normal farm business risk can be efficiently managed using a precautionary saving provision. Farm revenue insurance is found as the most efficient asymmetric tool for dealing with climatic and market shocks. The linkage between these complementary tools can be adjusted upon market environment.