Consumption Uncertainty and Precautionary Saving

Dimitris Christelis, Dimitris Georgarakos, Tullio Jappelli () and Maarten van Rooij

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: Using survey data from a representative sample of Dutch households, we estimate the strength of the precautionary saving motive by eliciting subjective expectations on future consumption. We find that expected consumption risk is higher for the young and the self-employed, and is correlated positively with income risk. We insert these subjective expectations (rather than consumption realizations, as in the existing literature) in a Euler equation for consumption, and estimate the degree of prudence by associating expected consumption risk with expected consumption growth. Robust OLS and IV estimates both indicate a coefficient of relative prudence of around 2.

Keywords: Consumption Risk; Euler Equation; Prudence; Precautionary Saving; Subjective Expectations. (search for similar items in EconPapers)
JEL-codes: C14 D12 D14 D81 E03 E21 (search for similar items in EconPapers)
Date: 2015-12-05
New Economics Papers: this item is included in nep-mac and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Forthcoming in The Review of Economics and Statistics

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http://www.csef.it/WP/wp421.pdf (application/pdf)

Related works:
Journal Article: Consumption Uncertainty and Precautionary Saving (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:421

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