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The Size of the Precautionary Component of Household Saving: China and the U.S

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  • Steven Lugauer

    (University of Notre Dame)

  • Nelson Mark

    (University of Notre Dame)

  • Horag Choi

    (Monash University)

Abstract

We decompose the household saving rate into precautionary and non-precautionary components. When applied to Chinese households, who save 30% of disposable income, the precautionary motive accounts for two-thirds of that saving rate. For some admissible parameter values, the saving rate increases with the growth rate of income thus helping to explain why fast growing economies also have high saving rates. A finite-lifetimes version of the model produces the U-shaped age-saving rate profile observed in Chinese household data. Comparative calculations for U.S. households indicate that to match the U.S. data, the non-borrowing constraint must be relaxed.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 1046.

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Date of creation: 2013
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Handle: RePEc:red:sed013:1046

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  1. Marcos Chamon & Eswar Prasad, 2008. "Why are Saving Rates of Urban Households in China Rising?," NBER Working Papers 14546, National Bureau of Economic Research, Inc.
  2. Reinhart, Carmen & Ogaki, Masao, 1998. "Intertemporal substitution and durable goods: long-run data," MPRA Paper 13683, University Library of Munich, Germany.
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