Consumption Uncertainty and Precautionary Saving

Dimitris Christelis; Dimitris Georgarakos; Tullio Jappelli; Maarten van Rooij

doi:10.1162/rest_a_00819

Consumption Uncertainty and Precautionary Saving

Dimitris Christelis¹; Dimitris Georgarakos²; Tullio Jappelli³; Maarten van Rooij⁴

¹ University of Naples Federico II, CSEF, CFS, and Netspar · ² European Central Bank and CFS · ³ University of Naples Federico II, CSEF, and CEPR · ⁴ De Nederlandsche Bank and Netspar

The Review of Economics and Statistics 2020 open access

Using survey data from a representative sample of Dutch households, we estimate the strength of precautionary saving by eliciting subjective expectations on future consumption. Expected consumption risk is positively correlated with self-employment and income risk and negatively with age. We insert these subjective expectations (rather than consumption realizations, as in the existing literature) in an Euler equation for consumption and estimate the degree of prudence by associating expected consumption risk with expected consumption growth. Robust OLS and IV estimates indicate a coefficient of relative prudence of around 2. We obtain similar results via partial identification methods using weak assumptions.

DOI: 10.1162/rest_a_00819
Volume: 102 (1)
Pages: 148-161
Language: en
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