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The Importance of Precautionary Motives in Explaining Individual and Aggregate Saving

  • R. Glenn Hubbard
  • Jonathan Skinner
  • Stephen P. Zeldes

This paper examines predictions of a life-cycle simulation model -- in which individuals face uncertainty regarding their length of life, earnings, and out-of-pocket medical expenditures, and imperfect insurance and lending markets -- for individual and aggregate wealth accumulation. Relative to life-cycle or buffer-stock alternatives, our augmented life-cycle model better matches a variety of features of U.S. data, including: (1) aggregate wealth, (2) cross-sectional differences in wealth-age and consumption-age profiles by education group, and (3) short-run time-series co-movements of consumption and income.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4516.

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Date of creation: Nov 1993
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Publication status: published as Carnegie-Rochester Conference Series on Public Policy, 40 (June 1994)pp. 59-126
Handle: RePEc:nbr:nberwo:4516
Note: AG PE EFG
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