Firm-Related Risk and Precautionary Saving Response

Luigi Guiso, Luigi Pistaferri and Andreas Fagereng

No 11809, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Precautionary savings; Firm shocks; Self-insurance (search for similar items in EconPapers)
Date: 2017-01
New Economics Papers: this item is included in nep-ias and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://cepr.org/publications/DP11809 (application/pdf)

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)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:11809

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP11809

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().