Buffer-Stock Saving and Households' Response to Income Shocks

CFS WP No. 570

42 Pages Posted: 5 Apr 2017  

Giulio Fella

Queen Mary, University of London

Serafin Frache

Central Bank of Uruguay

Winfried Koeniger

University of St. Gallen; CESifo (Center for Economic Studies and Ifo Institute); Center for Financial Studies (CFS); IZA Institute of Labor Economics

Multiple version iconThere are 3 versions of this paper

Date Written: Oktober 20, 2016

Abstract

We use the Italian Survey of Household Income and Wealth, a rather unique dataset with a long time dimension of panel information on consumption, income and wealth, to structurally estimate a buffer-stock saving model. We exploit the information contained in the joint dynamics of income, consumption and wealth to quantify the degree of insurance against income risk. The estimated model implies that Italian households can insure between 89 and 95 percent of a transitory and between 7 and 9 percent of a permanent income shock. Compared to existing empirical estimates for the same dataset, our findings suggest that Italian households do not have access to significant insurance beyond self-insurance.

Keywords: Consumption, Wealth, Incomplete markets, Insurance

JEL Classification: D91, E21

Suggested Citation

Fella, Giulio and Frache, Serafin and Koeniger, Winfried, Buffer-Stock Saving and Households' Response to Income Shocks (Oktober 20, 2016). CFS WP No. 570. Available at SSRN: https://ssrn.com/abstract=2947137

Giulio Fella

Queen Mary, University of London ( email )

Mile End Road
London E1 4NS, London E1 4NS
United Kingdom

Serafin Frache

Central Bank of Uruguay ( email )

Diagonal Fabini 777
Montevideo, CP 11100
Uruguay

Winfried Koeniger (Contact Author)

University of St. Gallen ( email )

Swiss Institute for Empirical Economic Research
Varnb├╝elstr. 14
St.Gallen, CH-9000
Switzerland

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Center for Financial Studies (CFS) ( email )

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Frankfurt am Main, 60323
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Schaumburg-Lippe Str. 7/9
D-53072 Bonn
Germany

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