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Saving for Retirement with Job Loss Risk

  • Grochulski, Borys

    ()

    (Federal Reserve Bank of Richmond)

  • Zhang, Yuzhe

    ()

    (Texas A&M University)

This article studies a tractable theoretical model of optimal consumption and saving decisions with endogenous retirement. Particular attention is paid to the impact of an increase in the risk of losing one’s job on the optimal path of consumption and wealth accumulation. Even if one does not actually lose their job, an increase in the risk of a job loss is by itself sufficient to cause lower consumption, higher saving, and, through faster retirement, lower labor supply.

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File URL: http://www.richmondfed.org/publications/research/economic_quarterly/2013/q1/pdf/grochulski.pdf
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Article provided by Federal Reserve Bank of Richmond in its journal Economic Quarterly.

Volume (Year): (2013)
Issue (Month): 1Q ()
Pages: 45-81

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Handle: RePEc:fip:fedreq:00003
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  1. Albert Marcet & Francesc Obiols-Homs & Philippe Weil, 2002. "Incomplete markets, labor supply and capital accumulation," Economics Working Papers 659, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2003.
  2. R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers 58, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  4. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
  5. Farhi, Emmanuel & Panageas, Stavros, 2007. "Saving and investing for early retirement: A theoretical analysis," Journal of Financial Economics, Elsevier, vol. 83(1), pages 87-121, January.
  6. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, January.
  7. Bewley, Truman, 1977. "The permanent income hypothesis: A theoretical formulation," Journal of Economic Theory, Elsevier, vol. 16(2), pages 252-292, December.
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