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Precautionary saving under liquidity constraints: evidence from Italy


  • Manuela Deidda



I empirically investigate precautionary savings under liquidity constraints in Italy using a unique indicator of subjective variance of income growth to measure the strength of the precautionary motive for saving, and a variety of survey-based indicators of liquidity constraints. The main contribution of the paper is twofold. First of all, I attempt to differentiate between the standard precautionary saving caused by uncertainty from the one due to liquidity constraints using an endogenous switching regression approach, which allows me to cope with endogeneity issues associated with sample splitting techniques. Second, I move one step further with respect to previous studies on consumption behaviour by taking explicitly expected liquidity constraints into account. I eventually found the precautionary motive for savings to be stronger for those households who face binding constraints, or expect constraints to be binding in the future. Indeed, a complementarity relation exists between precautionary savings and liquidity constraints. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Manuela Deidda, 2014. "Precautionary saving under liquidity constraints: evidence from Italy," Empirical Economics, Springer, vol. 46(1), pages 329-360, February.
  • Handle: RePEc:spr:empeco:v:46:y:2014:i:1:p:329-360 DOI: 10.1007/s00181-012-0677-y

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    References listed on IDEAS

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    Cited by:

    1. Tomas Havranek & Anna Sokolova, 2016. "Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 130 Studies Say “Probably Not”," Working Papers IES 2016/15, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jul 2016.

    More about this item


    Consumption; Precautionary saving; Liquidity constraints; Switching regression; E21; C21;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth


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