Precautionary Saving in a Markovian Earnings Environment
Review of Economic Dynamics, 2018, vol. 29, 138-147
Under what conditions does an increase in the future income risk (in the sense of second order stochastic dominance) result in an increase in savings? This paper establishes a novel sufficient condition for the case in which income follows a Markov process. The sufficient condition applies to a broad class of preferences and processes that are often adopted in the applied literature. (Copyright: Elsevier)
Keywords: Consumption; Savings; Precautionary savings; Prudence; Income uncertainty; Income fluctuation problem; Comparative statics (search for similar items in EconPapers)
JEL-codes: D91 D81 C60 (search for similar items in EconPapers)
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