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Precautionary Saving Motives: An Assessment from U.K. Time Series of Cross-Sections

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Author Info
Philip Merrigan () (Center for Research on Economic Fluctuations and Employment, UQAM)
Michel Normandin () (Center for Research on Economic Fluctuations and Employment, UQAM)

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Abstract

This paper gauges the strenght of precautionary saving motives by estimating the coefficient of prudence from the U.K. Family Expenditure Survey data set (a time series of cross-sections). Most instrumental variables estimates reveal that larger uncertainty leads to smaller current saving, and consequently, refute the validity of precautionary saving behavior. At best, some estimates imply that the impact of uncertainty on curent saving is positive, but is too small to be consistent with widely accepted beliefs about attitudes towards risk. These results cannot be explainded by either self-selection of households into risky environments, liquidity constraints, or risk-sharing.

Ce papier teste l'hypothèse d'épargne de précaution pour la Grande-Bretagne en estimant le coefficient de prudence à partir de la banque de données Family Expenditure Survey (une série chronologique de coupes transversales). La plupart des estimés (obtenus en appliquant une méthode de variations instrumentales) révèlent qu'une augmentation de l'incertitude entraîne une baisse d'épargne de précaution. Au mieux, certains estimés impliquent que l'impact de l'incertitude sur l'épargne courante est positif, mais est trop faible pour être en acccord avec l'aversion au risque des ménages qui est généralement acceptée. Ces résultats ne peuvent pas être expliqués par l'auto-sélection des ménages dans un environnement risqué, par les contraintes de liquidités de certains ménages, ou par la diversification du risque via des transferts entre les membres d'un ménage.

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Publisher Info
Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 29.

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Length: 30 pages
Date of creation: Aug 1994
Date of revision:
Publication status: Forthcoming, Economic Journal
Handle: RePEc:cre:crefwp:29

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Related research
Keywords: precautionary savings; UK;

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Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

Cited by:
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  1. Masahiro Hori & Satoshi Shimizutani, 2006. "Did Japanese consumers become more prudent during 1998--1999? Evidence from household-level data," International Economic Journal, Korean International Economic Association, vol. 20(2), pages 197-209, June. [Downloadable!] (restricted)
    Other versions:
  2. Alessandra Guariglia & Mariacristina Rossi, 2003. "Private Medical Insurance and Saving: Evidence from the British Household Panel Survey," CEIS Research Paper 39, Tor Vergata University, CEIS. [Downloadable!]
    Other versions:
  3. Jeong-Joon Lee & Yasuyuki Sawada, 2005. "Precautionary Saving under LiquidityConstraints: Evidence from Rural Pakistan," CIRJE F-Series CIRJE-F-377, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  4. Yasuyuki Sawada & Jeong-Joon Lee, 2006. "The Degree of Precautionary Saving: A Reexamination," CIRJE F-Series CIRJE-F-448, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
    Other versions:
  5. Joseph G. Eisenhauer, 2003. "Approximation bias in estimating risk aversion," Economics Bulletin, Economics Bulletin, vol. 4(38), pages 1-10. [Downloadable!]
  6. Sydney Ludvigson & Christina H. Paxson, 1997. "Approximation bias in linearized Euler equations," Research Paper 9712, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  7. Nordblom, Katarina, 1997. "Precautionary Saving and Altruism," Working Paper Series 1997:19, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  8. Sule Alan, 2004. "Precautionary Wealth and Portfolio Allocation: Evidence from Canadian Microdata," Social and Economic Dimensions of an Aging Population Research Papers 117, McMaster University. [Downloadable!]
  9. Hazel Jean Malapit & Jade Eric Redoblado & Deanna Margarett Cabungcal-Dolor & Jasmin Suministrado, 2006. "Labor Supply Responses to Adverse Shocks under Credit Constraints: Evidence from Bukidnon, Philippines," Cahiers de recherche PMMA 2006-15, PEP-PMMA. [Downloadable!]
  10. Alessandra Guariglia & Sheri Markose, 2000. "Voluntary Contributions to Personal Pension Plans: Evidence from the British Household Panel Survey," Fiscal Studies, Institute for Fiscal Studies, vol. 21(4), pages 469-488, December. [Downloadable!]
  11. Shiba Suzuki, 2009. "Risks after Disasters: A Note on the Effects of Precautionary Saving on Equity Premiums," Global COE Hi-Stat Discussion Paper Series gd08-040, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  12. Myung Hoon Yi & Changkyu Choi, 2006. "A GMM test of the precautionary saving hypothesis with nonexpected-utility preferences," Applied Economics, Taylor and Francis Journals, vol. 38(1), pages 71-78, January. [Downloadable!] (restricted)
  13. Joseph G. Eisenhauer & Luigi Ventura, 2003. "Survey measures of risk aversion and prudence," Applied Economics, Taylor and Francis Journals, vol. 35(13), pages 1477-1484, September. [Downloadable!] (restricted)
  14. Andrew Benito, . "Does job insecurity affect household consumption?," Bank of England working papers 220, Bank of England. [Downloadable!]
    Other versions:
  15. Atella Vincenzo & Furio C. Rosati & Maria C. Rossi, 2002. "Precautionary Saving And Health Risk.Evidence From The Italian Households Using A Time Series Of Cross Sections," Departmental Working Papers 159, Tor Vergata University, CEIS. [Downloadable!]
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