Buffer-Stock Saving and Households' Response to Income Shocks

Fella, Giulio; Frache, Serafin; Koeniger, Winfried

doi:10.2139/ssrn.2947137

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Buffer-Stock Saving and Households' Response to Income Shocks

CFS Working Paper, No. 570

42 Pages Posted: 5 Apr 2017 Last revised: 11 Jan 2018

See all articles by Giulio Fella

Giulio Fella

Queen Mary, University of London; University of Bologna, Department of Economics

Winfried Koeniger

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

There 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: Suggested Citation

Fella, Giulio and Frache, Serafin and Koeniger, Winfried, Buffer-Stock Saving and Households' Response to Income Shocks (Oktober 20, 2016). CFS Working Paper, No. 570, Available at SSRN: https://ssrn.com/abstract=2947137 or http://dx.doi.org/10.2139/ssrn.2947137