An Exact Analysis of Precautionary Consumption Growth

Jeanne Commault

Sciences Po Economics Publications (main) from HAL

Abstract: Using surveys about the distribution of future consumption growth, I find that on average 8% of expected consumption growth from a year to the next is explained by precautionary behavior. This precautionary component is sensitive to employment shocks, while the non-precautionary component of consumption growth is not. This is consistent with precautionary behavior playing an important role in business cycles. Standard approximated expressions of consumption growth do not capture this large contribution, mostly because they are based on the approximations of mathematical identities—a relation of the form x = f −1 (f(x)). Empirically, using such an approximation underestimates precautionary growth by more than half.

Keywords: Precautionary behavior; Log-linearized Euler equation; Random walk hypothesis (search for similar items in EconPapers)
Date: 2025-11
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03591010v2
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Related works:
Working Paper: An Exact Analysis of Precautionary Consumption Growth (2025)
Working Paper: An Exact Analysis of Precautionary Consumption Growth (2022)
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