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Uninsured idiosyncratic risk and aggregate saving


  • S. Rao Aiyagari


We find that precautionary saving accounts for only a modest (less than 3 percentage point) increase in the aggregate saving rate, at least for moderate and empirically plausible parameter values. This finding is based on a quantitative analysis of a reasonably parameterized version of the standard growth model modified to include a large number of agents who receive uninsured idiosyncratic labor endowment shocks. In contrast to representative agent models, asset trading is quite important to individuals. The model can also account qualitatively for the positive skewness of wealth and income distributions, and significantly greater wealth inequality compared to income inequality.

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  • S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmwp:502

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    References listed on IDEAS

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    10. Danziger, Sheldon & Haveman, Robert & Plotnick, Robert, 1981. "How Income Transfer Programs Affect Work, Savings, and the Income Distribution: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 19(3), pages 975-1028, September.
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    Saving and investment ; Risk;


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