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Buffer‐Stock Saving And Households' Response To Income Shocks

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  • Giulio Fella
  • Serafin Frache
  • Winfried Koeniger

Abstract

We exploit information on the joint dynamics of household labor income, consumption, and wealth in the Italian Survey of Household Income and Wealth to structurally estimate a buffer‐stock saving model. We compare the degree of consumption smoothing implied by the model to the corresponding empirical estimates based on the same data set. We estimate that Italian households smooth 12% of permanent income shocks in the data that is comparable to the model counterpart of 11% . This result contrasts with existing evidence, and our own findings in this article, of substantially more consumption smoothing in U.S. data.

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  • Giulio Fella & Serafin Frache & Winfried Koeniger, 2020. "Buffer‐Stock Saving And Households' Response To Income Shocks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(3), pages 1359-1382, August.
  • Handle: RePEc:wly:iecrev:v:61:y:2020:i:3:p:1359-1382
    DOI: 10.1111/iere.12459
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    Cited by:

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    2. Dirk Krueger & Egor Malkov & Fabrizio Perri, 2023. "How Do Households Respond to Income Shocks?," Staff Report 655, Federal Reserve Bank of Minneapolis.

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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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