Consumption Uncertainty and Precautionary Saving

42 Pages Posted: 27 Jan 2016

See all articles by Dimitris Christelis

Dimitris Christelis

Adam Smith Business School, University of Glasgow; Centre for Studies in Economics and Finance (CSEF), University of Naples Federico II; Center for Financial Studies (CFS); Netspar

Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research; Center for Financial Studies (CFS)

Tullio Jappelli

University of Naples Federico II - Department of Economics and Statistics; Center for Studies in Economics and Finance - CSEF; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Maarten van Rooij

De Nederlandsche Bank; Netspar

Multiple version iconThere are 3 versions of this paper

Date Written: January 26, 2016

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 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 both indicate a coefficient of relative prudence of around 2.

Keywords: Consumption Risk, Euler Equation, Prudence, Precautionary Saving, Subjective Expectations

JEL Classification: D12, D14, D81, E03, E21, C14

Suggested Citation

Christelis, Dimitrios and Georgarakos, Dimitris and Jappelli, Tullio and van Rooij, Maarten, Consumption Uncertainty and Precautionary Saving (January 26, 2016). De Nederlandsche Bank Working Paper No. 496, Available at SSRN: https://ssrn.com/abstract=2723056 or http://dx.doi.org/10.2139/ssrn.2723056

Dimitrios Christelis (Contact Author)

Adam Smith Business School, University of Glasgow ( email )

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Centre for Studies in Economics and Finance (CSEF), University of Naples Federico II ( email )

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Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research ( email )

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Germany

Center for Financial Studies (CFS) ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

Tullio Jappelli

University of Naples Federico II - Department of Economics and Statistics ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy

HOME PAGE: http://www.csef.it/people/jappelli.htm

Center for Studies in Economics and Finance - CSEF

University of Naples Federico II
Via Cinthia - Monte S. Angelo
Napoli, 80146
Italy

HOME PAGE: http://www.csef.it/people/jappelli.htm

Centre for Economic Policy Research (CEPR)

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United Kingdom

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European Corporate Governance Institute (ECGI)

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Belgium

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Maarten van Rooij

De Nederlandsche Bank ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

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