Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis
AbstractThis paper argues that the typical household's saving is better described by a buffer-stock version than by the traditional version of the Life Cycle/Permanent Income Hypothesis (LC/PIH) model Buffer-stock behavior emerges if consumers with important income uncertainty are sufficiently impatient In the traditional model consumption growth is determined solely by tastes; in contract buffer-stock consumers set average consumption growth equal to average labor income growth regardless of tastes The model can explain three empirical puzzles: the consumption/income parallel of Carroll and Summers ; the consumption/income divergence first documented in the 1930's; and the temporal stability of the household age/wealth profile despite the unpredictability of idiosyncratic wealth changes
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Bibliographic InfoPaper provided by The Johns Hopkins University,Department of Economics in its series Economics Working Paper Archive with number 371.
Date of creation: Jul 1990
Date of revision: Aug 1996
Other versions of this item:
- Carroll, Christopher D, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 1-55, February.
- Christopher D. Carroll, 1996. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," NBER Working Papers 5788, National Bureau of Economic Research, Inc.
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Why recent tax rebates did not work
by Economic Logician in Economic Logic on 2010-05-18 13:57:00
by John Barrdear in John Barrdear on 2008-12-06 17:24:47
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