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A GMM test of the precautionary saving hypothesis with nonexpected-utility preferences

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  • Myung Hoon Yi
  • Changkyu Choi

Abstract

Using GMM estimation with the US data from January 1967 to April 2003, the precautionary saving hypothesis is tested using time-varying consumption uncertainty and a nonexpected-utility model of intertemporal optimal consumption. Overidentifying restrictions of the model specification are also tested for both expected and nonexpected utility using Hansen's J-statistics. It was found that the precautionary saving hypothesis did not hold under expected-utility preferences but did hold partly under nonexpected-utility preferences.

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  • Myung Hoon Yi & Changkyu Choi, 2006. "A GMM test of the precautionary saving hypothesis with nonexpected-utility preferences," Applied Economics, Taylor & Francis Journals, vol. 38(1), pages 71-78.
    • Handle: RePEc:taf:applec:v:38:y:2006:i:1:p:71-78
    DOI: 10.1080/00036840500367492
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