Firm-Related Risk and Precautionary Saving Response

Andreas Fagereng, Luigi Guiso and Luigi Pistaferri
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Luigi Pistaferri: Stanford University

No 1702, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: We propose a new approach to identify the strength of the precautionary motive and the extent of self-insurance in response to earnings risk based on Euler equation estimates. To address endogeneity problems, we use Norwegian administrative data and instrument consumption and earnings volatility with the variance of firm-specific shocks. The instrument is valid because firms pass some of their productivity shocks onto wages; moreover, for most workers firm shocks are hard to avoid. Our estimates suggest a coefficient of relative prudence of 2, in a very plausible range.

Pages: 13 pages
Date: 2017, Revised 2017-01
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Firm-Related Risk and Precautionary Saving Response (2017)
Working Paper: Firm-Related Risk and Precautionary Saving Response (2017)
Working Paper: Firm-Related Risk and Precautionary Saving Response (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:1702

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