Precautionary saving and changes in risk correlation

Marco Magnani and Mario Menegatti

Economics Bulletin, 2015, vol. 35, issue 1, 561-570

Abstract: This note analyzes the effect of a change in the covariance between labor income risk and interest rate risk on the threshold level for prudence ensuring positive precautionary saving, recently derived by Baiardi, Magnani and Menegatti (2014). We show that this effect is different in different cases. An increase in the covariance between the two risks decreases (increases) the threshold level when the variance of labor income is smaller (larger) than the variance of the return on saving. An interpretation of these results in terms of elasticity of total variance with respect to saving is provided.

Keywords: Precautionary saving; labor income risk; interest rate risk; prudence; risk covariance (search for similar items in EconPapers)
JEL-codes: D1 D8 (search for similar items in EconPapers)
Date: 2015-03-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.accessecon.com/Pubs/EB/2015/Volume35/EB-15-V35-I1-P60.pdf (application/pdf)

Related works:
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:ebl:ecbull:eb-14-01050

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().