The Nature of Precautionary Wealth

Christopher Carroll () and Andrew Samwick

No 5193, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper uses the Panel Study of Income Dynamics to provide some of the first direct evidence that wealth is systematically higher for consumers with greater income uncertainty. However, the apparent pattern of precautionary saving is not consistent with a standard parameterization of the life cycle model in which consumers are patient enough to begin saving for retirement early in life: wealth is estimated to be less sensitive to uncertainty in permanent income than implied by that model. Instead, our results suggest that over most of their working lifetime, consumers behave in accordance with the 'buffer-stock' models of saving described in Carroll (1992) or Deaton (1991), in which consumers hold wealth principally to insulate consumption against near term fluctuations in income.

JEL-codes: D91 E21 (search for similar items in EconPapers)
Date: 1995-07
Note: AG EFG PE
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Journal Article: The nature of precautionary wealth (1997)
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