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Estimating a Precautionary Saving Motive under Consumption Uncertainty (in Korean)

Author

Listed:
  • Jin-tae Hwang

    (Department of Economics, Daegu University)

  • Sung-min Kim

    (School of Economics & Trade, Kyungpook National University)

Abstract

Using data from the Household Income and Expenditure Survey over the period 1994-2016, we estimate the coefficient of relative prudence in order to capture precautionary saving motive. To do this, we adopt a cohort approach, where we transform such microdata into sample cohort means. Together with initial income involving liquidity constraint, we estimate the relative prudence derived from the Euler equation. The two-stage least-squares (2SLS) between estimate of it obtained from the cohort panel data analysis is too small for the existence of precautionary saving motive, as in previous studies, while the 2SLS random effects estimate is so reasonable. Moreover, the liquidity-constrained cohorts tend to be more sensitive to uncertainty, relative to the unconstrained ones.

Suggested Citation

  • Jin-tae Hwang & Sung-min Kim, 2020. "Estimating a Precautionary Saving Motive under Consumption Uncertainty (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 26(3), pages 48-70, June.
    • Handle: RePEc:bok:journl:v:26:y:2020:i:3:p:48-70
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    More about this item

    Keywords

    Consumption growth; Precautionary saving motive; Relative prudence; Liquidity constraint; Sample cohort means;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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