Consumption uncertainty and precautionary saving

Christelis, D. , Georgarakos, D., Jappelli, T. and van Rooij, M. (2020) Consumption uncertainty and precautionary saving. Review of Economics and Statistics, 102(1), pp. 148-161. (doi: 10.1162/rest_a_00819)

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Abstract

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 both indicate a coefficient of relative prudence of around 2. We obtain similar results via partial identification methods using weak assumptions.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Christelis, Dr Dimitris
Authors: Christelis, D., Georgarakos, D., Jappelli, T., and van Rooij, M.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Review of Economics and Statistics
Publisher:MIT Press
ISSN:0034-6535
ISSN (Online):1530-9142
Published Online:28 February 2020
Copyright Holders:Copyright © 2019 President and Fellows of Harvard College and the Massachusetts Institute of Technology
First Published:First published in Review of Economics and Statistics 102(1):149-161
Publisher Policy:Reproduced in accordance with the publisher copyright policy

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