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Precautionary Saving Motives: An Assessment from U.K. Time Series of Cross-Sections

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Abstract

This paper gauges the strenght of precautionary saving motives by estimating the coefficient of prudence from the U.K. Family Expenditure Survey data set (a time series of cross-sections). Most instrumental variables estimates reveal that larger uncertainty leads to smaller current saving, and consequently, refute the validity of precautionary saving behavior. At best, some estimates imply that the impact of uncertainty on curent saving is positive, but is too small to be consistent with widely accepted beliefs about attitudes towards risk. These results cannot be explainded by either self-selection of households into risky environments, liquidity constraints, or risk-sharing. Ce papier teste l'hypothèse d'épargne de précaution pour la Grande-Bretagne en estimant le coefficient de prudence à partir de la banque de données Family Expenditure Survey (une série chronologique de coupes transversales). La plupart des estimés (obtenus en appliquant une méthode de variations instrumentales) révèlent qu'une augmentation de l'incertitude entraîne une baisse d'épargne de précaution. Au mieux, certains estimés impliquent que l'impact de l'incertitude sur l'épargne courante est positif, mais est trop faible pour être en acccord avec l'aversion au risque des ménages qui est généralement acceptée. Ces résultats ne peuvent pas être expliqués par l'auto-sélection des ménages dans un environnement risqué, par les contraintes de liquidités de certains ménages, ou par la diversification du risque via des transferts entre les membres d'un ménage.

Suggested Citation

  • Philip Merrigan & Michel Normandin, 1994. "Precautionary Saving Motives: An Assessment from U.K. Time Series of Cross-Sections," Cahiers de recherche CREFE / CREFE Working Papers 29, CREFE, Université du Québec à Montréal.
  • Handle: RePEc:cre:crefwp:29
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    Keywords

    precautionary savings; UK;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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