Precautionary Savings and the Permanent Income Hypothesis

Philippe Weil

The Review of Economic Studies, 1993, vol. 60, issue 2, 367-383

Abstract: This paper derives the explicit solution of a dynamic stochastic optimal consumption problem for infinitely-lived agents whose preferences exhibit, in the presence of non-diversifiable labour income uncertainty, a constant elasticity of intertemporal substitution and constant absolute risk aversion. The constancy of the elasticity of intertemporal substitution, which implies that marginal utility at zero consumption is infinite, guarantees that the non-negativity constraint on consumption is never binding along the optimal path. The assumption of constant absolute risk aversion allows an explicit computation of human wealth, and provides a simple representation of the precautionary savings motive.

Date: 1993
References: Add references at CitEc
Citations: View citations in EconPapers (118)

Downloads: (external link)
http://hdl.handle.net/10.2307/2298062 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Precautionary Savings and the Permanent Income Hypothesis (1993)
Working Paper: Precautionary Savings and the Permanent Income Hypothesis (1993)
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:oup:restud:v:60:y:1993:i:2:p:367-383.

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().