Risk pooling, precautionary saving and consumption growth

James Banks, Richard Blundell () and Agar Brugiavini

No W99/19, IFS Working Papers from Institute for Fiscal Studies

Abstract: In this paper we model the evolution ofincome risk and consumption growth.We decompose the time series innovation of the income process intoits common and cohort-specific components. From these we compute conditional variances which are used as separate risk terms in a consumptiongrowthequation. U singalongtimeseriesofB ritishhouseholddatawe ndstrongevidenceofprecautionarysaving. Specically, afterallowing fordemographicand labourmarketstatus, there is an independent role for income risk in explaining consumption growth. R atherthanthecomponentthatis commonacross cohorts, however, it is thecohort-specicelementthatis important in determining changes in consumption growth.This result points to a failure of between-cohort insurance mechanisms.

JEL-codes: D12 D81 D91 (search for similar items in EconPapers)
Pages: 39 pp.
Date: 1999-08-01
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Citations: View citations in EconPapers (28)

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Related works:
Journal Article: Risk Pooling, Precautionary Saving and Consumption Growth (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:ifs:ifsewp:99/19

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