A reconciliation of two alternative approaches towards buffer stock saving
This paper shows that the two main models in the buffer stock saving literature can be nested in a model that varies the level of available social insurance. Equivalently, the assumption about the time series process for labor income (and social insurance during unemployment) is crucial in determining the level (but not the shape) of optimal consumption as a function of liquid wealth.
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References listed on IDEAS
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- MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
- Angus Deaton, 1989.
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NBER Working Papers
3196, National Bureau of Economic Research, Inc.
- Pischke, Jorn-Steffen, 1995.
"Individual Income, Incomplete Information, and Aggregate Consumption,"
Econometric Society, vol. 63(4), pages 805-40, July.
- Pishke, J.S., 1992. "Individual Income, Incomplete Information and Aggregate Consumption," Papers 9238, Tilburg - Center for Economic Research.
- Pischke, J., 1992. "Individual Income, Incomplete Information, and Aggregate Consumption," Discussion Paper 1992-38, Tilburg University, Center for Economic Research.
- Pischke, J.S., 1993. "Individual Income, Incomplete Information, and Aggregate Consumption," Working papers 93-16, Massachusetts Institute of Technology (MIT), Department of Economics.
- Pischke, Jörn-Steffen, 1991. "Individual income, incomplete information, and aggregate consumption," ZEW Discussion Papers 91-07, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
- Abowd, John M & Card, David, 1989.
"On the Covariance Structure of Earnings and Hours Changes,"
Econometric Society, vol. 57(2), pages 411-45, March.
- John M. Abowd & David Card, 1986. "On the Covariance Structure of Earnings and Hours Changes," NBER Working Papers 1832, National Bureau of Economic Research, Inc.
- Christopher D. Carroll, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 1-55.
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