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Saving for Retirement with Job Loss Risk

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  • Grochulski, Borys

    ()
    (Federal Reserve Bank of Richmond)

  • Zhang, Yuzhe

    ()
    (Texas A&M University)

Abstract

This article studies a tractable theoretical model of optimal consumption and saving decisions with endogenous retirement. Particular attention is paid to the impact of an increase in the risk of losing one’s job on the optimal path of consumption and wealth accumulation. Even if one does not actually lose their job, an increase in the risk of a job loss is by itself sufficient to cause lower consumption, higher saving, and, through faster retirement, lower labor supply.

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File URL: http://www.richmondfed.org/publications/research/economic_quarterly/2013/q1/pdf/grochulski.pdf
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Bibliographic Info

Article provided by Federal Reserve Bank of Richmond in its journal Economic Quarterly.

Volume (Year): (2013)
Issue (Month): 1Q ()
Pages: 45-81

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Handle: RePEc:fip:fedreq:00003

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  1. Bewley, Truman, 1977. "The permanent income hypothesis: A theoretical formulation," Journal of Economic Theory, Elsevier, vol. 16(2), pages 252-292, December.
  2. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
  3. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  4. R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers 58, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Marcet, Albert & Obiols-Homs, Francesc & Weil, Philippe, 2007. "Incomplete markets, labor supply and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2621-2635, November.
  6. Farhi, Emmanuel & Panageas, Stavros, 2007. "Saving and investing for early retirement: A theoretical analysis," Journal of Financial Economics, Elsevier, vol. 83(1), pages 87-121, January.
  7. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
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