Precautionary Savings and Income Uncertainty
Author | : Keiko Murata |
Publisher | : |
Total Pages | : 54 |
Release | : 2003 |
Genre | : Consumer behavior |
ISBN | : |
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Author | : Keiko Murata |
Publisher | : |
Total Pages | : 54 |
Release | : 2003 |
Genre | : Consumer behavior |
ISBN | : |
Author | : Catherine Willemin |
Publisher | : |
Total Pages | : 130 |
Release | : 2013 |
Genre | : Political planning |
ISBN | : |
Precautionary savings is important in helping households to weather short-term fluctuations in income and expenses. While many papers have previously estimated the effect of income uncertainty on savings, this paper examines the possibility that the precautionary savings motive changes in response to the macroeconomic environment. This paper uses data from the Survey of Consumer Finances (SCF) before and after the most recent recession to estimate the effect of income uncertainty on emergency savings through the use of logit and OLS regression models. The results show that after the recession, people without income certainty for the following year see their savings decline significantly; those with income certainty for the following year see their savings stay flat or even increase. This suggests that there may be an additional precautionary savings motivation that is cued by the recession as people become more alert to the potential need for emergency savings. However, only some groups are actually able to act on this motive to maintain or increase savings, since some are already feeling the negative effects of the recession on the household level. This paper generally highlights the need for more policy attention to the gap in short-term emergency savings. Additionally, the results suggest that particular attention should be focused on helping people take advantage of good financial years to build an emergency savings buffer.
Author | : Nikolaus Bartzsch |
Publisher | : |
Total Pages | : 56 |
Release | : 2006 |
Genre | : |
ISBN | : 9783865582409 |
Author | : Matthew Joyce |
Publisher | : |
Total Pages | : 0 |
Release | : 2022 |
Genre | : |
ISBN | : |
Our estimates indicate that 24% of net wealth is attributed to precautionary savings in Australia. Moreover, across the income distribution, we find that low-income households have the highest fraction of their wealth accumulation explained by precautionary motives. These results for Australia are at odds with the estimates of precautionary wealth in the United States where related studies find that low-income households hold low levels of precautionary savings. Using a simple theoretical model, we show that differences in means-tested social insurance programs can rationalize these large differences in our empirical results.
Author | : Mr.Christopher Carroll |
Publisher | : International Monetary Fund |
Total Pages | : 47 |
Release | : 2012-09-01 |
Genre | : Business & Economics |
ISBN | : 1475505698 |
We argue that the U.S. personal saving rate’s long stability (from the 1960s through the early 1980s), subsequent steady decline (1980s - 2007), and recent substantial increase (2008 - 2011) can all be interpreted using a parsimonious ‘buffer stock’ model of optimal consumption in the presence of labor income uncertainty and credit constraints. Saving in the model is affected by the gap between ‘target’ and actual wealth, with the target wealth determined by credit conditions and uncertainty. An estimated structural version of the model suggests that increased credit availability accounts for most of the saving rate’s long-term decline, while fluctuations in net wealth and uncertainty capture the bulk of the business-cycle variation.
Author | : Mr.Ashoka Mody |
Publisher | : International Monetary Fund |
Total Pages | : 38 |
Release | : 2012-02-01 |
Genre | : Business & Economics |
ISBN | : 1463936435 |
Heightened uncertainty since the onset of the Great Recession has materially increased saving rates, contributing to lower consumption and GDP growth. Consistent with a model of precautionary savings in the face of uncertainty, we find for a panel of advanced economies that greater labor income uncertainty is significantly associated with higher household savings. These results are robust to controlling for other determinants of saving rates, including wealth-to-income ratios, the government fiscal balance, demographics, credit conditions, and global growth and financial stress. Our estimates imply that at least two-fifths of the sharp increase in household saving rates between 2007 and 2009 can be attributed to the precautionary savings motive.
Author | : Chris Carroll |
Publisher | : |
Total Pages | : 70 |
Release | : 1995 |
Genre | : Economic security |
ISBN | : |
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 | : Barbara Broadway |
Publisher | : |
Total Pages | : 32 |
Release | : 2017 |
Genre | : |
ISBN | : |
This paper estimates the effect of income uncertainty on assets held in accounts and cash, and finds substantial empirical evidence for precautionary savings. Using household-level panel data, it explicitly distinguishes between 'real' income uncertainty the household is actually exposed to, and 'perceived' income uncertainty. It finds that the latter substantially increases precautionary savings above and beyond the effect of 'real' income uncertainty. The effect of subjective economic uncertainty on behaviour has only begun to show up after the Great Recession. The economic crisis appears to have shifted households' willingness to forgo current consumption for insurance purposes. Our results imply that households save above their optimal level especially after and during a crisis, potentially exacerbating the economic downturn.
Author | : Mr.Atish R. Ghosh |
Publisher | : International Monetary Fund |
Total Pages | : 44 |
Release | : 1992-09-01 |
Genre | : Business & Economics |
ISBN | : 1451959044 |
The relationship between current account developments and changes in the macroeconomic environment remains a key issue in open economy macroeconomics. This paper extends the standard intertemporal optimizing model of the current account to incorporate the effects of macroeconomic uncertainty on private savings behavior. It is shown that the greater the uncertainty in national cash flow, defined as output less investment less government expenditure, the greater is the precautionary demand for savings and, other things equal, the larger is the current account surplus. Empirical support for the model is found using quarterly data from four large industrial countries.
Author | : Mr.Marcos Chamon |
Publisher | : International Monetary Fund |
Total Pages | : 36 |
Release | : 2010-12-01 |
Genre | : Business & Economics |
ISBN | : 1455211702 |
China’s household saving rate has increased markedly since the mid-1990s and the age-savings profile has become U-shaped. We find that rising income uncertainty and pension reforms help explain both of these phenomena. Using a panel of Chinese households covering the period 1989-2006, we document that strong average income growth has been accompanied by a substantial increase in income uncertainty. Interestingly, the permanent variance of household income remains stable while it is the transitory variance that rises sharply. A calibration of a buffer-stock savings model indicates that rising savings rates among younger households are consistent with rising income uncertainty and higher saving rates among older households are consistent with a decline in the pension replacement ratio for those retiring after 1997. We conclude that rising income uncertainty and pension reforms can account for over half of the increase in the urban household savings rate in China since the mid-1990s as well as the U-shaped age-profile of savings.