Precautionary Savings and the Permanent Income Hypothesis PDF Download

Author: Philippe Weil
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Author: Miles S. Kimball
Publisher:
ISBN:
Category : Consumption (Economics)
Languages : en
Pages : 42

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Author: Richard H. Adams
Publisher: World Bank Publications
ISBN:
Category : Ahorro - Pakistan
Languages : en
Pages : 36

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Book Description
Much of past literature has assumed that households in developing countries save at the same marginal rate from all sources of income. But in rural Pakistan households save at very different marginal rates from different sources of income. The marginal propensity to save from those sources of income that are more variable and uncertain --- like external remittances --- is much higher than from those sources of income that are more predictable --- like rental income.

Author: Chris Carroll
Publisher:
ISBN:
Category : Economic security
Languages : en
Pages : 70

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We estimate the fraction of the wealth of a sample of PSID respondents that is held because some households face greater income uncertainty than others. We first derive an equation characterizing the theoretical relationship between wealth and uncertainty in a buffer-stock model of saving. Next, we estimate that equation using PSID data; we find strong evidence that households engage in precautionary saving. Finally, we simulate the wealth distribution that would prevail if all households had the same uncertainty as the lowest-uncertainty group. We find that between 39 and 46 percent of wealth in our sample is attributable to uncertainty differentials across groups.

Author: Chris Carroll
Publisher:
ISBN:
Category : Consumer behavior
Languages : en
Pages : 17

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Because the budget constraint implies that consumption must eventually fully adjust to permanent shocks, intuition suggests that consumption-smoothers will have an immediate marginal propensity to consume of one out of permanent shocks. However, this paper shows that if consumers are impatient and experience both transitory and permanent income shocks, the immediate marginal propensity to consume out of permanent shocks is strictly less than one, because buffer-stock savers have a target wealth-to-permanent-income ratio; for a consumer starting at the target ratio, a positive shock to permanent income moves their actual wealth- to-permanent-income ratio below the target, temporarily boosting the saving rate

Author: Neng Wang
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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The permanent-income hypothesis (PIH) of Milton Friedman (1957) states that the agent saves in anticipation of possible future declines in labor income (John Y. Campbell, 1987). He also saves for precautionary reasons, and dissaves because of impatience. To justify the PIH in an intertemporal optimization framework, it has been conventional to assume both (i) quadratic utility, to turn off precautionary motives (Hall, 1978), and (ii) equality between the subjective discount rate and the interest rate, in order to rule out dissavings for lack of patience. Neither assumption is plausible. Much work on consumption in the past decade has focused on individual's precautionary savings motives and liquidity constraints. Impatience is a standard result in heterogeneous agents general-equilibrium incomplete-markets models, generally known as Bewley models. This paper shows that the PIH is in any case the optimal rule, in a Bewley model, in which each agent solves the precautionary-savings model of Caballero (1990, 1991). In addition to the demand for savings for a rainy day, Caballero's model also predicts a constant precautionary - savings demand and constant dissavings due to impatience. In equilibrium, I show that these two forces must cancel each other. As a result, the agent behaves in accordance with the PIH.

Author: Annamaria Lusardi
Publisher:
ISBN:
Category : Consumption (Economics)
Languages : en
Pages : 302

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Author: Christopher D. Carroll
Publisher:
ISBN:
Category :
Languages : es
Pages : 17

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Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
The National Bureau of Economic Research, Inc. presents an abstract for the paper entitled "Precautionary Saving and the Marginal Propensity to Consume Out of Permanent Income," by Christopher D. Carroll and published April 2001. The paper discusses consumer behavior and saving and the propensity to consume from permanent income. Users may purchase the full text of the paper online.

Author: Andreas Fagereng
Publisher: International Monetary Fund
ISBN: 1484370066
Category : Business & Economics
Languages : en
Pages : 69

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Book Description
We provide a systematic analysis of the properties of individual returns to wealth using twelve years of population data from Norway’s administrative tax records. We document a number of novel results. First, during our sample period individuals earn markedly different average returns on their financial assets (a standard deviation of 14%) and on their net worth (a standard deviation of 8%). Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the financial wealth distribution increases the return by 3 percentage points - and by 17 percentage points when the same exercise is performed for the return to net worth. Fourth, wealth returns exhibit substantial persistence over time. We argue that while this persistence partly reflects stable differences in risk exposure and assets scale, it also reflects persistent heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are (mildly) correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.