IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-07d80007.html
   My bibliography  Save this article

A note on the relevance of prudence in precautionary saving

Author

Listed:
  • Luigi Ventura

    (Department of Economics, University of Rome "La Sapienza")

Abstract

The aim of this note is to suggest that prudence, i.e. convexity of marginal utility, can only explain a small share of precautionary savings, which we may define as savings generated by variance in income. Therefore, if we are willing to admit that precautionary savings constitute a sizable share of total savings, other factors should be called for. We present a few examples showing that risk aversion might constitute one such factor.

Suggested Citation

  • Luigi Ventura, 2007. "A note on the relevance of prudence in precautionary saving," Economics Bulletin, AccessEcon, vol. 4(23), pages 1-11.
    • Handle: RePEc:ebl:ecbull:eb-07d80007
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/pubs/EB/2007/Volume4/EB-07D80007A.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kuehlwein, Michael, 1991. "A test for the presence of precautionary saving," Economics Letters, Elsevier, vol. 37(4), pages 471-475, December.
    2. Hayne E. Leland, 1968. "Saving and Uncertainty: The Precautionary Demand for Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(3), pages 465-473.
    3. Adam J. Grossberg, 1991. "Personal Saving under Income Uncertainty: A Test of the Intertemporal Substitution Hypothesis," Eastern Economic Journal, Eastern Economic Association, vol. 17(2), pages 203-210, Apr-Jun.
    4. Christopher D. Carroll & Andrew A. Samwick, 1998. "How Important Is Precautionary Saving?," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 410-419, August.
    5. Irvine, Ian & Wang, Susheng, 2001. "Saving behavior and wealth accumulation in a pure lifecycle model with income uncertainty," European Economic Review, Elsevier, vol. 45(2), pages 233-258, February.
    6. Stefan Hochguertel, 2003. "Precautionary motives and portfolio decisions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 61-77.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Carol Newman & Fiona Wainwright, 2011. "Income Shocks and Household Risk-Coping Strategies: Evidence from Rural Vietnam," The Institute for International Integration Studies Discussion Paper Series iiisdp358, IIIS.
    2. Christian Josef Bauer & Wolfgang Buchholz, 2008. "How Changing Prudence and Risk Aversion Affect Optimal Saving," CESifo Working Paper Series 2438, CESifo.
    3. Ventura, Luigi, 2008. "Risk sharing opportunities and macroeconomic factors in Latin American and Caribbean countries : A consumption insurance assessment," Policy Research Working Paper Series 4490, The World Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:ebl:ecbull:v:4:y:2007:i:23:p:1-11 is not listed on IDEAS
    2. Luigi Ventura & Joseph G. Eisenhauer, 2005. "The Relevance of Precautionary Saving," German Economic Review, Verein für Socialpolitik, vol. 6(1), pages 23-35, February.
    3. Luigi Ventura & Joseph Eisenhauer, 2006. "Prudence and precautionary saving," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 30(2), pages 155-168, June.
    4. Arthur Kennickell & Annamaria Lusardi, 2004. "Disentangling the Importance of the Precautionary Saving Mode," NBER Working Papers 10888, National Bureau of Economic Research, Inc.
    5. Gomes, Fábio Augusto Reis & Ribeiro, Priscila Fernandes, 2015. "Estimating the elasticity of intertemporal substitution taking into account the precautionary savings motive," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 108-123.
    6. Reis Gomes, Fábio Augusto, 2020. "Evaluating a consumption function with precautionary savings and habit formation under a general income process," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 157-166.
    7. Daria Pignalosa, 2019. "On the role of the utility function in the estimation of preference parameters," Metroeconomica, Wiley Blackwell, vol. 70(4), pages 793-820, November.
    8. Pasquale Lucio Scandizzo, 2014. "The social rate of discount, climate change and real options," CEIS Research Paper 309, Tor Vergata University, CEIS, revised 18 Feb 2014.
    9. Joseph Eisenhauer & Luigi Ventura, 2003. "Survey measures of risk aversion and prudence," Applied Economics, Taylor & Francis Journals, vol. 35(13), pages 1477-1484.
    10. Atreya Chakraborty & Mark Kazarosian, 1999. "Portfolio Allocation of Precautionary Assets: Panel Evidence for the United States," Boston College Working Papers in Economics 432, Boston College Department of Economics.
    11. Abdul Jalil, Ahmad Zafarullah, 2009. "The importance of precautionary saving motive among Indonesian households," MPRA Paper 25189, University Library of Munich, Germany.
    12. Durmaz, Tunç, 2016. "Precautionary Storage in Electricity Markets," Discussion Papers 2016/5, Norwegian School of Economics, Department of Business and Management Science.
    13. Ambrogio Cesa‐Bianchi & Emilio Fernandez‐Corugedo, 2018. "Uncertainty, Financial Frictions, and Nominal Rigidities: A Quantitative Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(4), pages 603-636, June.
    14. Ingrid Groessl & Ulrich Fritsche, 2006. "The Store-of-Value-Function of Money as a Component of Household Risk Management," Macroeconomics and Finance Series 200606, University of Hamburg, Department of Socioeconomics.
    15. Hauenschild, Nils & Stahlecker, Peter, 2001. "Precautionary saving and fuzzy information," Economics Letters, Elsevier, vol. 70(1), pages 107-114, January.
    16. Alba Lugilde & Roberto Bande & Dolores Riveiro, 2018. "Precautionary saving in Spain during the great recession: evidence from a panel of uncertainty indicators," Review of Economics of the Household, Springer, vol. 16(4), pages 1151-1179, December.
    17. Nicholas Apergis & Costas Katrakilidis, 2001. "Testing the intertemporal substitution hypothesis: The impact of income uncertainty on savings," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(3), pages 537-548, September.
    18. Raslan Alzuabi & Sarah Brown & Daniel Gray & Mark N Harris & Christopher Spencer, 2022. "Household saving, health, and healthcare utilization in Japan [Stature, obesity, and portfolio choice]," Oxford Economic Papers, Oxford University Press, vol. 74(2), pages 473-497.
    19. Heinzel Christoph & Richard Peter, 2021. "Precautionary motives with multiple instruments," Working Papers SMART 21-09, INRAE UMR SMART.
    20. Lee, Kiryoung & Jeon, Yoontae, 2020. "Measuring Chinese consumers’ perceived uncertainty," International Review of Economics & Finance, Elsevier, vol. 66(C), pages 51-70.
    21. Feigenbaum James A. & Li Geng, 2012. "Life Cycle Dynamics of Income Uncertainty and Consumption," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-49, May.

    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G0 - Financial Economics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-07d80007. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.