Consumption smoothing among working-class American families before social insurance

John James, Michael Palumbo and Mark Thomas

No 1999-24, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper examines whether the saving decisions of a large sample of working-class American families around the turn of the twentieth century are consistent with consumption smoothing tendencies in the spirit of the permanent income hypothesis. We develop two econometric models to decompose reported annual incomes from micro-data into expected and unexpected components, then we estimate marginal propensities to save out of each component of income. The two methodologies deliver similar regression estimates and reveal empirical patterns consistent with those reported in other recent research based on quite different contemporary household data. Marginal propensities to save out of unexpected income shocks are large relative to propensities based on expected income movements, though the former lie much below one and the latter much above zero. While these data reject strict parameterizations of the permanent income hypothesis, we nonetheless conclude that families' saving decisions in the historical period look quite \"modern.\"

Keywords: Income (search for similar items in EconPapers)
Date: 1999
New Economics Papers: this item is included in nep-dge and nep-ias
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Related works:
Journal Article: Consumption smoothing among working-class American families before social insurance (2007)
Working Paper: Consumption Smoothing Among Working-Class American Families Before Social Insurance (1998)
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