Precautionary Motives for Holding Assets

12 Pages Posted: 7 Nov 2007 Last revised: 16 Jan 2009

See all articles by Miles S. Kimball

Miles S. Kimball

University of Michigan at Ann Arbor - Department of Economics; University of Colorado Boulder; Center for Economic and Social Research, USC; National Bureau of Economic Research (NBER)

Date Written: January 1991

Abstract

At least three types of precautionary motives are directly relevant to an agent's demand for assets. (I.) The precautionary saving motive, or prudence, can cause an agent to respond to a risk by accumulating more wealth. (II.) The desire to moderate total exposure to risk, or temperance, can cause an agent to respond to an unavoidable risk by reducing exposure to other risks even when the other risks are statistically independent of the first. (III.) The precautionary demand for liquidity can cause an agent to respond to a risk by holding more money.

Suggested Citation

Kimball, Miles S., Precautionary Motives for Holding Assets (January 1991). NBER Working Paper No. w3586. Available at SSRN: https://ssrn.com/abstract=471544

Miles S. Kimball (Contact Author)

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