Intertemporal Self-insurance and Excess Sensitivity of Affluent Households

Ettore Savoia ()
Additional contact information
Ettore Savoia: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

No 464, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: This paper studies household consumption behavior when saving motives differ due to preference or income risk heterogeneity. I show that self-insurance operates along two margins: a standard liquidity margin determined by the level of current resources and an intertemporal margin governed by target savings. Stronger saving motives imply higher target savings, which tilt consumption toward the future. This forward-looking behavior lowers marginal propensities to consume (MPCs) independently of current resources. Canonical incomplete-markets models confound these margins because saving motives and resources co-move. I provide conditions under standard preferences and rational expectations that overturn this mapping. When saving motives and saving capacity (such as income) are negatively related, higher-income households can be wealthier yet exhibit higher MPCs because their target savings are lower. Cross-sectional MPC–resource profiles can therefore be non-monotonic due to type sorting along the resource distribution. Empirical and quantitative applications to income-risk heterogeneity support the mechanism and highlight a new perspective in which affluent households shape aggregate demand beyond standard borrowing-constraint channels.

Keywords: Incomplete Markets; Self-Insurance; Sorting; Marginal Propensity to Consume. (search for similar items in EconPapers)
JEL-codes: D12 D81 E21 (search for similar items in EconPapers)
Pages: 84 pages
Date: 2026-03-01
New Economics Papers: this item is included in nep-dge
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.riksbank.se/globalassets/media/rapport ... luent-households.pdf Full text (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:hhs:rbnkwp:0464

Access Statistics for this paper

More papers in Working Paper Series from Sveriges Riksbank (Central Bank of Sweden) Sveriges Riksbank, SE-103 37 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Lena Löfgren ().