A GMM test of the precautionary saving hypothesis with nonexpected-utility preferences

Myung Hoon Yi and Changkyu Choi

Applied Economics, 2006, vol. 38, issue 1, 71-78

Abstract: Using GMM estimation with the US data from January 1967 to April 2003, the precautionary saving hypothesis is tested using time-varying consumption uncertainty and a nonexpected-utility model of intertemporal optimal consumption. Overidentifying restrictions of the model specification are also tested for both expected and nonexpected utility using Hansen's J-statistics. It was found that the precautionary saving hypothesis did not hold under expected-utility preferences but did hold partly under nonexpected-utility preferences.

Date: 2006
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DOI: 10.1080/00036840500367492

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