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Precautionary Saving: a review of the theory and the evidence

Alba Lugilde, Roberto Bande () and Dolores Riveiro

MPRA Paper from University Library of Munich, Germany

Abstract: Standard macroeconomic models show that uncertainty plays a significant role in consumption and saving decisions under rather mild conditions, namely the convexity of the marginal utility of consumption. Increased uncertainty generates a positive extra saving, the so-called “precautionary saving”. Although this hypothesis has been tested by a large number of authors, both at macro and micro level, the empirical results are not conclusive, and the main conclusion than can be drawn is that there is neither consensus on the intensity of that motive for saving, nor on the most appropriate measure of uncertainty. This paper provides a comprehensive review of the literature (both theoretical and empirical) and discusses the main controversial issues and the different approaches followed by the studies addressing empirically the test of precautionary saving.

Keywords: precautionary saving; Euler equation; preferences types; empirical puzzles; uncertainty measures (search for similar items in EconPapers)
JEL-codes: D11 D14 E21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-upt
Date: 2017-03
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