Keep Calm and Consume? Subjective Uncertainty and Precautionary Savings

Barbara Broadway () and John P. Haisken-DeNew ()
Additional contact information
Barbara Broadway: Melbourne Institute: Applied Economic & Social Research, The University of Melbourne, http://findanexpert.unimelb.edu.au/display/person353961
John P. Haisken-DeNew: Melbourne Institute: Applied Economic & Social Research, The University of Melbourne, http://findanexpert.unimelb.edu.au/display/person409420
Authors registered in the RePEc Author Service: John P. de New

Melbourne Institute Working Paper Series from Melbourne Institute of Applied Economic and Social Research, The University of Melbourne

Abstract: 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.

Keywords: Subjective uncertainty; precautionary savings; HILDA; CASiE (search for similar items in EconPapers)
JEL-codes: D14 D84 (search for similar items in EconPapers)
Pages: 32pp
Date: 2017-07
References: Add references at CitEc
Citations: View citations in EconPapers (2)

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http://melbourneinstitute.unimelb.edu.au/__data/as ... 432165/wp2017n18.pdf (application/pdf)

Related works:
Journal Article: Keep calm and consume? Subjective uncertainty and precautionary savings (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:iae:iaewps:wp2017n18

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