Consumption Uncertainty and Precautionary Saving

Dimitris Christelis, Dimitris Georgarakos, Tullio Jappelli () and Maarten van Rooij

The Review of Economics and Statistics, 2020, vol. 102, issue 1, 148-161

Abstract: Using survey data from a representative sample of Dutch households, we estimate the strength of precautionary saving by eliciting subjective expectations on future consumption. Expected consumption risk is positively correlated with self-employment and income risk and negatively with age. We insert these subjective expectations (rather than consumption realizations, as in the existing literature) in an Euler equation for consumption and estimate the degree of prudence by associating expected consumption risk with expected consumption growth. Robust OLS and IV estimates indicate a coefficient of relative prudence of around 2. We obtain similar results via partial identification methods using weak assumptions.

Date: 2020
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Working Paper: Consumption Uncertainty and Precautionary Saving (2015)
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