How Important is Precautionary Saving?

Christopher Carroll () and Andrew Samwick

No 5194, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D91 E21 (search for similar items in EconPapers)
Date: Written
Note: AG EFG PE
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Related works:
Working Paper: How important is precautionary saving? (1993)
Journal Article: How Important Is Precautionary Saving? (1998)
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