19/12/2017 · Precautionary Saving..
For a lump-sum investment payoff and an agent with a sufficiently strong precautionary savings motive, an increase in volatility can accelerate investment, contrary to the standard real options analysis.
Precautionary savings - Wikipedia
The development of the permanent income/life cycle consumption hypothesis was a key blow to Keynesian and Kaleckian economics. According to George Akerlof, it "set the agenda" for modern neoclassical macroeconomics. This paper focuses on the relationship of housing wealth to neoclassical consumption theory, and in particular, the degree to which homes can be treated collectively with other forms of "permanent income." The neoclassical analysis is evaluated as a partly normative and partly positive one, in recognition of the dual function of the neoclassical theory of rationality. The paper rests its critique primarily on the distinctive role of homes in social life; theories that fail to recognize this role jeopardize the social and economic goods at stake. Since many families do not own large amounts of assets other than their places of residence, these issues have important ramifications for the relevance of consumption theory as a whole.
We consider a labor income process that allows us to decompose the consumption and portfolio effects of permanent and transitory shocks to labor income and show their interaction with liquidity constraints and their relative importance in producing precautionary effects and the portfolio specialization result.
Precautionary Saving and the Marginal Propensity to Consume Out of ..
However, this paper shows that if consumers are impatient and are subject to transitory as well as permanent shocks, the optimal marginal propensity to consume out of permanent shocks (the MPCP) is strictly less than 1, because buffer stock savers have a target wealth-to-permanent-income ratio; a positive shock to permanent income moves the ratio below its target, temporarily boosting saving.
to Consume Out Of Permanent Income.
Discusses the permanent income hypothesis and the mechanisms by which consumption smoothing responds to short‐run changes in income. It also reviews the role played by income and expectations in transmitting fluctuations through the economy. The chapter considers detailed econometric evidence on the excess sensitivity of consumption to present and lagged changes in income. Explanations involving non‐stationary income, the timing of consumption, durables, and habit formation are critically evaluated.
precautionary saving and precautionary wealth : The …
How do people determine their levels of consumption? This question has attracted much attention; not only is it important in its own right, but it is also related to economic trends and macroeconomic policies. The life cycle/permanent income hypothesis has been regarded as the most important theory on consumption decisions. In this paper, the recent development of the theoretical studies on the life cycle/permanent income hypothesis is surveyed since the well-known article of Hall (1978). The survey focuses on the study about precautionary savings. The structure of this paper is as follows.
permanent-income hypothesis; ..
In Section 1, the outline and background of the permanent income hypothesis by Friedman (1956) are presented. Briefly explained is the difference between the studies before Hall (1978) and these after his.