Estimating the elasticity of intertemporal substitution taking into account the precautionary savings motive

This paper estimates the elasticity of intertemporal substitution for U.S. aggregate time series data, taking into account the precautionary savings motive. By making use of a recursive utility function, we estimate an Euler equation, via GMM. This procedure leads consumption growth rate to depend on asset returns, and on a time-varying variance, which captures the precautionary motive. When significant, the elasticity of intertemporal substitution estimates ranges from 0.4 to 1.8, which are higher than most of the results found in the literature. Furthermore, the evidence suggests that consumers react to risk; however, the contribution of precautionary motive to consumption growth seems to be limited.     

Precautionary saving under liquidity constraints: evidence from Italy

I empirically investigate precautionary savings under liquidity constraints in Italy using a unique indicator of subjective variance of income growth to measure the strength of the precautionary motive for saving, and a variety of survey-based indicators of liquidity constraints. The main contribution of the paper is twofold. First of all, I attempt to differentiate between the standard precautionary saving caused by uncertainty from the one due to liquidity constraints using an endogenous switching regression approach, which allows me to cope with endogeneity issues associated with sample splitting techniques. Second, I move one step further with respect to previous studies on consumption behaviour by taking explicitly expected liquidity constraints into account. I eventually found the precautionary motive for savings to be stronger for those households who face binding constraints, or expect constraints to be binding in the future. Indeed, a complementarity relation exists between precautionary savings and liquidity constraints.     

中国城市居民预防性储蓄及预防性动机强度:1999-2003

中国居民储蓄的超常增长近年来成为一个被普遍关注的问题 ,而居民储蓄动机更是成为人们关注的焦点。一个普遍的看法是 ,预防性储蓄动机在中国居民储蓄决策中起重要作用。本文从标准的消费者预期效用最大化模型出发 ,推导出收入不确定性条件下消费函数的显式解和衡量预防性动机强度的公式 ;然后用我国 3 5个大中城市1 999— 2 0 0 3年的数据进行计量分析 ,结果发现 3 5个大中城市的居民储蓄行为中的确存在预防性动机 ,但预防性动机并非如人们预期的那么强。在对该结果的可能原因进行分析后 ,本文给出了若干政策建议。     

Precautionary savings of agents with heterogeneous risk aversion

This article focuses on the estimation of the importance of the precautionary motive in the wealth accumulation decision. We use the micro data set of the De Nederlandsche Bank (DNB) Household Survey (DHS) (CentERdata, Tilburg University), a Dutch household survey containing information on wealth, a subjective measure of income uncertainty and subjective qualitative measures of risk aversion. We find that only a small share of wealth is accumulated for the precautionary motive by the Dutch households. This share of wealth is constant across assets with different degrees of liquidity. The economic downturn of the period 2008 to 2010 seems to affect risk attitudes and precautionary saving. Our findings also suggest that the more risk-averse individuals are those who hold less savings.     

Precautionary motivation and consumption insurance: Empirical analysis of household consumption behavior in rural China

Based on a household survey in rural China, this paper discusses parameters such as precautionary motive, excess sensitivity, consumption insurance, and inter-temporal substitution in the household consumption function in rural China. The conclusions of the paper indicate that there is a significant precautionary motive in household consumption in rural China, but the function of consumption insurance is very limited, and the consumption is also excessively sensitive to the income change. Such parameters are different among consumers within different groups. __________ Translated from Zhongguo Nongcun Jingji 中国农村经济 (Chinese Rural Economy), 2006, (4): 12–19     

经济转轨与城镇化进程中的居民消费行为特征——对1396户城镇家庭的实证分析

基于中国9个省1396户城镇家庭的面板数据,运用系统广义矩估计法对一个包括习惯形成和不确定性的欧拉方程进行估计以考察家庭消费是否跨时演进,研究结果表明,偏好的设定偏误是传统的生命周期——持久收入模型不能很好地诠释中国城镇家庭消费决策的一个原因,在解释消费决策的影响因素时假定偏好的跨时可分性会得出错误的结论,城镇居民消费偏好的跨时不可分性以及由收入和支出不确定性引发的预防性储蓄动机是导致居民消费倾向持续偏低的重要原因。     

不确定性下农村家庭食品消费的"习惯形成"检验

本文利用"习惯形成"(habit formation)假说来研究中国家庭食品消费行为的特征,并首次利用1989—2006年农村家庭微观面板数据进行实证分析,从而试图给出近年来农村居民储蓄率持续偏高、消费倾向持续偏低的一种新解释。对动态面板模型的系统广义矩估计结果显示,农村居民家庭的食品消费有显著的习惯形成效应,这一效应即使在考虑了家庭的"预防性动机"之后仍然是稳健的,并且它对消费的边际影响比预防性动机更为重要。但是本文估计出的"习惯形成"参数比用总量数据得到的习惯形成参数要小。     

The surprisingly low importance of income uncertainty for precaution

While it is common to use income uncertainty to explain household saving decisions, there is much disagreement about the importance of precautionary saving. This paper suggests that income uncertainty is not an important motive for saving, although households do have other precautionary reasons to save. Using a question from the Survey of Consumer Finances that asks how much households want for precautionary purposes, this paper shows that expressed household preferences, and liquid savings, are much lower than predicted by standard modeling assumptions. Households rarely list unemployment as a reason to save. Perceived income uncertainty does not affect liquid savings or precautionary preferences. Neither does being in an occupation with higher income volatility. Instead, households seem very concerned with expenditure shocks.     

Precautionary savings under income uncertainty: a cross-sectional analysis

The first part of this paper derives a closed fro solution for present consumption as a function of current and expected economic variables, which contains a precautionary component that is directly affected by future income risk. An estimating equation forthe structural relationship between savings and their determinants is discussed and tested using cross-sectional data from the 1984 UK Family Expenditure Survey.     

Birth,Death, and Consumption: Overlapping Generations and the Random Walk Hypothesis

This paper studies the time-series behavior of consumption in a model that incorporates birth, death, and a precautionary motive for saving. Consumption of an individual agent is a random walk. However, aggregate consumption is a random walk if and only if the sum of the death rate and population growth rate is zero. Failure of the random walk hypothesis should not be attributed to finite horizons perse, but rather to inter-generational transfers caused by birth and death. Unlike certainty-equivalent models, the expected growth of consumption depends on financial wealth, rather than wage income or human capital. [D91, E21]     

Wage arrears uncertainty and precautionary saving in Russia1

Wage arrears are widespread in Russia, and are one of the main causes of uncertainty in the labour market. In this paper, we use the Russian Longitudinal Monitoring Survey over the period 1994–98 to construct a new and improved measure of household income risk, based on the uncertainty due to wage arrears. We then use this measure of uncertainty to test the precautionary saving hypothesis, according to which households save to self‐insure against risk. We find significant evidence of additional saving by those households whose head is more likely to suffer from wage arrears one year hence. This suggests the existence of a strong precautionary saving motive.     

UNCERTAINTY AND CONSUMPTION: NEW EVIDENCE IN OECD COUNTRIES

This work analyses the empirical evidence about precautionary saving in OECD countries in the period 1955–2000. Unlike the previous literature, we perform the test using a measure of uncertainty allowing for heterogeneity in stochastic processes which generate data for each country and selecting for each economy the autoregressive moving average process which best describes the series. The results obtained support the main conclusion of precautionary saving theory, showing that a greater degree of uncertainty increases saving. A less clear conclusion is obtained with reference to the effect of uncertainty on consumption growth, which does not seem to be strongly supported by the data.     

Health insurance and precautionary saving: A structural analysis

Starr-McCluer (1996) documented an empirical finding showing that US households covered by health insurance saved more than those without coverage, which is inconsistent with the standard consumption–saving theory. This study conducts a structural analysis and suggests that institutional factors, particularly, a social insurance or safety net system and an employment-based health insurance system, can account for this puzzling finding. A dynamic equilibrium model is built that combines these two institutions with heterogeneous agents making endogenous decisions regarding saving, the labor supply and health insurance when they are young. The model, in which agents save in a precautionary manner, can generate Starr-McCluer?s empirical finding. The result implies that Starr-McCluer?s results are not inconsistent with the standard theory of saving under uncertainty, but it does indicate that the standard saving regression model is unable to reveal the precautionary saving motive. Counterfactual experiments are performed to provide implications for empirical analyses.     

预防性储蓄动机强度的时序变化与地区差异——基于中国农村居民的实证研究

本文选择中国农村居民1992—2006年间的分省面板数据,采用固定效应—工具变量法(FE-IV)对我国农村居民预防性储蓄动机强度及其地区差异、时序变化展开了详细的实证研究。结果表明,我国农村居民存在很强的预防性储蓄动机,并且西部农村居民的预防性储蓄动机强于中部与东部农村居民;然而滚动回归表明,就全国而言,样本分析区间内我国农村居民的相对谨慎性系数起先还比较平稳,然后呈不断上升的趋势,到最后阶段稍有下降;而分地区的滚动回归结果则表明,各个地区之间存在较大的差异。本文最后在从多个角度对实证结果进行解释的基础上为缓解我国农村居民储蓄快速增长提出了若干政策建议。     

Macroeconomic Volatility and the Current Account: Evidence from a Panel of OECD Countries

ABSTRACT

This paper investigates the relationship between macroeconomic volatility and the current account. Using quarterly data for a panel of OECD economies, time-varying relative volatility measures are constructed for GDP, net output, and government consumption. The empirical evidence suggests that current account balances are positively affected by all three volatility measures. Moreover, the current account balance is found to be related positively to output growth and negatively to the growth of government consumption. Evidence from saving and investment rates also suggests that the precautionary saving motive is part of (though perhaps not the entire) mechanism that relates output volatility and the current account. Broadly consistent with the predictions of the standard theoretical model, these estimates are sizable, statistically significant, and robust.     

Consumption,welfare, and stochastic population dynamics when technology shocks are (Un)tied

The impact of uncertainty on consumption and welfare seems obvious; because of the precautionary saving motive, higher uncertainty reduces consumption, and subsequently, deteriorates welfare. Recent several studies, however, find that this intuitive narrative is not necessarily true. This paper provides the analytical underpinnings for this. In the absence of technological progress, I find that the larger demographic shocks always reduce consumption, but improve the welfare of households. Moreover, when demographic shocks are negatively tied to technology shocks, there emerges an inverted-U relationship between the size of two shocks and consumption, and a U-shaped relationship between the size of two shocks and household welfare. These results are all characterized analytically in the framework of the stochastic two-sector growth model featuring the correlated Brownian motion process. The findings suggest that demographic policies should not be implemented with no reference to the state of technology.     

为结婚而储蓄?——来自中国家庭追踪调查①(CFPS)的经验证据

已有研究主要基于性别比失衡的竞争性储蓄动机解释了中国家庭的高储蓄之谜.文章把子女结婚这一自然事件作为处理变量,通过婚前和婚后的家庭储蓄变化识别出"婚姻效应",为竞争性储蓄动机理论和中国家庭的高储蓄之谜提供了微观证据.研究结果发现,在控制个人以及家庭特征后,相对于已婚家庭,未婚家庭储蓄显著更高.在排除地区性差异、教育储蓄动机、预防性储蓄动机和样本匹配等问题之后,未婚比已婚家庭具有更高储蓄水平的结论依然稳健.文章进一步分析识别出了城市和农村异质"婚姻效应"和婚后消费结构的变化,发现"婚姻效应"对不同收入水平的家庭都产生了影响,但"婚姻效应"对低收入家庭的消费抑制更为明显.文章的研究结果丰富了婚姻市场的竞争性储蓄动机理论.     

The effect of precautionary saving on consumption in Sweden

Uncertainty concerning future income lowers consumption. This is often called the precautionary demand for savings. In this paper the existence of precautionary savings. In this paper the existence of precautionary saving is investigated using Swedish data for the years 1973–1992. As there are no variables for consumers' uncertainty a proxy is used. Assuming an underlying distribution of attitudinal data, a variance series is derived. Including the proxy in different specifications of the consumption function, indication of precautionary saving can be found. As a result, no uncertainty would raise consumption by 4.9%.     

Precautionary retirement and precautionary saving

The paper analyzes the lifetime utility maximization problem of an agent who chooses her saving and timing of retirement in the presence of labor income risk in a simple setting where a pure redistributive pension scheme is in place. In this context, a precautionary motive for retirement, which pushes old workers to replace an uncertain labor income with certain pension payments, and to retire early is identified. The conditions for precautionary retirement and saving to arise are then characterized and interpreted in two settings. In the first setting, utility only depends on income, and a sufficiently low level of absolute prudence is necessary for precautionary retirement. A sufficiently high level is necessary however for precautionary saving, which can coexist with precautionary retirement only for intermediate values of absolute prudence. In the second setting, agent utility also depends on leisure, and three conditions allow the precautionary motive for retirement and saving to jointly operate: prudence, an index of absolute prudence sufficiently low and cross-prudence in leisure.     

Sustainability and Wealth of Rural Households: Measurement and Inequality Analysis

A small but growing literature is linking well-being with the value of assets, measured comprehensively. This measure, called comprehensive wealth, has appeared as a leading economic indicator of sustainability by reflecting the potential of future well-being. Despite the concerns of sustainability for policy interventions at the micro-level, the existing literature is limited to country-level estimations. This paper applies the general framework of weak sustainability to measure wealth at the household level. Using data from three rounds of household survey, market prices, and yield data from rural Burkina Faso, we measure wealth, income, and consumption per adult. The results show that wealth has consistently increased over time in contrast to income and consumption which have fluctuated. Wealth is also less unequally distributed. Finally, consumption is found to be more correlated with wealth. This suggests that wealth-based interventions are more likely to improve well-being in a sustainable way.