Permanent Income Shocks, Target Wealth, and the Wealth Gap

Tullio Jappelli () and Luigi Pistaferri

American Economic Journal: Macroeconomics, 2025, vol. 17, issue 1, 102-25

Abstract: We test the key implication of the buffer-stock model, namely that any revision in permanent income leads to a proportionate revision in target wealth. We use panel data on the amount of wealth that people think they must hold for precautionary purposes. Using the covariance restrictions that the model imposes on the joint behavior of income and target wealth, we find that households indeed revise, approximately one for one, their target wealth in response to permanent income shocks. The speed of adjustment of actual wealth to target wealth is similar to that obtained in simulations of a buffer-stock model.

JEL-codes: D15 E21 G51 (search for similar items in EconPapers)
Date: 2025
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Related works:
Working Paper: Permanent Income Shocks, Target Wealth, and the Wealth Gap (2020)
Working Paper: Permanent Income Shocks, Target Wealth, and the Wealth Gap (2020)
Working Paper: Permanent Income Shocks, Target Wealth, and the Wealth Gap (2020)
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DOI: 10.1257/mac.20220160

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