Precautionary Savings and Wealth Inequality: a Global Sensitivity Analysis
AbstractThis paper applies Canova JAE 1994 methodology to perform a thorough sensitivity analysis for the Aiyagari QJE 1994 economy. This is a calibrated GE model with incomplete markets and uninsurable income risk, designed to quantify the size of precautionary savings and the degree of wealth inequality. The results of this global robustness analysis are broadly consistent with Aiyagari's findings. Even when considering priors for the parameters uncertainty which are highly dispersed, the size of the precautionary savings is modest: at most, they account for an 11% increase in the saving rate. However, the results show that the parameter representing the exogenous borrowing limit seems to lead to relatively large changes in measures of wealth inequality. The Gini index increases by 15 points when considering values of the borrowing limits that lead to empirically plausible shares of households with a negative net worth. The parameters that quantitatively have the largest effects on determining the wealth Gini index are the capital share, the borrowing limit, and the depreciation rate. The parameters affecting most significantly precautionary savings are the risk aversion and the standard deviation of the income shocks.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 1270.
Length: 60 pages
Date of creation: Jun 2011
Date of revision:
Precautionary Savings; Calibration; Heterogeneous Agents; Incomplete Markets; Computable General Equilibrium; Monte Carlo;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-18 (All new papers)
- NEP-CMP-2011-06-18 (Computational Economics)
- NEP-DGE-2011-06-18 (Dynamic General Equilibrium)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2009.
"Quantitative macroeconomics with heterogeneous households,"
420, Federal Reserve Bank of Minneapolis.
- Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2009. "Quantitative Macroeconomics with Heterogeneous Households," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 319-354, 05.
- Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2009. "Quantitative Macroeconomics with Heterogeneous Households," NBER Working Papers 14768, National Bureau of Economic Research, Inc.
- Javier Díaz-Giménez & Vincenzo Quadrini & José-Víctor Ríos-Rull, 1997. "Dimensions of inequality: facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-21.
- Santiago Budria Rodriguez & Javier Diaz-Gimenez & Vincenzo Quadrini & Jose-Victor Rior-Rull, 2002. "Updated facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-35.
- Marco Cozzi, 2011.
"Optimal Unemployment Insurance in GE: a RobustCalibration Approach,"
1272, Queen's University, Department of Economics.
- Cozzi, Marco, 2012. "Optimal unemployment insurance in GE: A robust calibration approach," Economics Letters, Elsevier, vol. 117(1), pages 28-31.
- Marco Cozzi, 2013.
"Risk Aversion Heterogeneity, Risky Jobs and Wealth Inequality,"
2013 Meeting Papers
842, Society for Economic Dynamics.
- Marco Cozzi, 2012. "Risk Aversion Heterogeneity, Risky Jobs and Wealth Inequality," Working Papers 1286, Queen's University, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Babcock).
If references are entirely missing, you can add them using this form.