Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis

Christopher Carroll

No 5788, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper argues that the typical household's saving is better described by a "bufferstock" version than by the traditional version of the Life Cycle/Permanent Income Hypothesis (LC/PIH) model. Buffer-stock behavior emerges if consumers with important income uncertainty are sufficiently impatient. In the traditional model, consumption growth is determined solely by tastes; in contrast, buffer-stock consumers set average consumption growth equal to average labor income growth, regardless of tastes. The model can explain three empirical puzzles: the [1991]; the the 1930's; and the temporal stability of the household age/wealth profile despite the unpredictability of idiosyncratic wealth changes.

JEL-codes: D91 E21 (search for similar items in EconPapers)
Date: 1996-10
Note: EFG ME
References: View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Published as Quarterly Journal of Economics, Vol. 107, no. 1 (February 1997): 1-56.

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Journal Article: Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis (1997)
Working Paper: Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis (1996)
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