IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/25189.html
   My bibliography  Save this paper

The importance of precautionary saving motive among Indonesian households

Author

Listed:
  • Abdul Jalil, Ahmad Zafarullah

Abstract

In the developing world, the population is frequently faced with numerous natural, economic, institutional and market risks. Because of these uncertainties, many individuals and households experience difficult periods of unexpected reduction in income. Using panel data from the Indonesian Family Life Survey (IFLS), this paper tests the existence of precautionary saving associated with income risk in Indonesia. The results of the estimation show that the uncertainty variable is not significantly related to the growth of consumption which signifies that Indonesian households do not constitute precautionary saving to smooth their consumption. The finding may be explained by the fact that Indonesian households have in their possession other type of support mechanisms based particularly on inter-generational and -communal solidarity.

Suggested Citation

  • Abdul Jalil, Ahmad Zafarullah, 2009. "The importance of precautionary saving motive among Indonesian households," MPRA Paper 25189, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:25189
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/25189/1/MPRA_paper_25189.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-346, April.
    2. Christopher D. Carroll & Karen E. Dynan & Spencer D. Krane, 2003. "Unemployment Risk and Precautionary Wealth: Evidence from Households' Balance Sheets," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 586-604, August.
    3. Merrigan, Philip & Normandin, Michel, 1996. "Precautionary Saving Motives: An Assessment from UK Time Series of Cross-Sections," Economic Journal, Royal Economic Society, vol. 106(438), pages 1193-1208, September.
    4. Mark Kazarosian, 1997. "Precautionary Savings-A Panel Study," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 241-247, May.
    5. Christopher D. Carroll & Andrew A. Samwick, 1998. "How Important Is Precautionary Saving?," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 410-419, August.
    6. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Journal of Economic Literature, American Economic Association, vol. 34(4), pages 1797-1855, December.
    7. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    8. Skinner, Jonathan, 1988. "Risky income, life cycle consumption, and precautionary savings," Journal of Monetary Economics, Elsevier, vol. 22(2), pages 237-255, September.
    9. Kuehlwein, Michael, 1991. "A test for the presence of precautionary saving," Economics Letters, Elsevier, vol. 37(4), pages 471-475, December.
    10. Annamaria Lusardi, 2000. "Precautionary Saving and the Accumulation of Wealth," Working Papers 0012, Harris School of Public Policy Studies, University of Chicago.
    11. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, July.
    12. Caballero, Ricardo J, 1991. "Earnings Uncertainty and Aggregate Wealth Accumulation," American Economic Review, American Economic Association, vol. 81(4), pages 859-871, September.
    13. Blundell, Richard & M. Stoker, Thomas, 1999. "Consumption and the timing of income risk," European Economic Review, Elsevier, vol. 43(3), pages 475-507, March.
    14. Albarran, P., 2000. "Income Uncertainty and Precautionary Saving: Evidence from Household Rotating Panel Data," Papers 0008, Centro de Estudios Monetarios Y Financieros-.
    15. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1992. "Earnings uncertainty and precautionary saving," Journal of Monetary Economics, Elsevier, vol. 30(2), pages 307-337, November.
    16. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
    17. James Banks & Richard Blundell & Agar Brugiavini, 2001. "Risk Pooling, Precautionary Saving and Consumption Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(4), pages 757-779.
    18. Sibley, David S., 1975. "Permanent and transitory income effects in a model of optimal consumption with wage income uncertainty," Journal of Economic Theory, Elsevier, vol. 11(1), pages 68-82, August.
    19. Hayne E. Leland, 1968. "Saving and Uncertainty: The Precautionary Demand for Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(3), pages 465-473.
    20. Karen E. Dynan, 1993. "How prudent are consumers?," Working Paper Series / Economic Activity Section 135, Board of Governors of the Federal Reserve System (U.S.).
    21. Lusardi, Annamaria, 1998. "On the Importance of the Precautionary Saving Motive," American Economic Review, American Economic Association, vol. 88(2), pages 449-453, May.
    22. Dynan, Karen E, 1993. "How Prudent Are Consumers?," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1104-1113, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lugilde, Alba & Bande, Roberto & Riveiro, Dolores, 2017. "Precautionary Saving: a review of the theory and the evidence," MPRA Paper 77511, University Library of Munich, Germany.
    2. Alba Lugilde & Roberto Bande & Dolores Riveiro, 2018. "Precautionary saving in Spain during the great recession: evidence from a panel of uncertainty indicators," Review of Economics of the Household, Springer, vol. 16(4), pages 1151-1179, December.
    3. Essig, Lothar, 2005. "Precautionary saving and old-age provisions : do subjective saving motives measures work?," Papers 05-22, Sonderforschungsbreich 504.
    4. Essig, Lothar, 2004. "Precautionary saving and old-age provisions: Do subjective saving motives measures work?," Sonderforschungsbereich 504 Publications 05-22, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    5. Alessandra Guariglia & Byung‐Yeon Kim, 2003. "The Effects of Consumption Variability on Saving: Evidence from a Panel of Muscovite Households," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(3), pages 357-377, July.
    6. Lothar Essig, 2005. "Precautionary saving and old-age provisions: Do subjective saving motive measures work?," MEA discussion paper series 05084, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    7. Andrew Benito, 2002. "Does Job Insecurity Affect Household Consumption?," Working Papers 0225, Banco de España.
    8. Luc Arrondel & Hector Calvo Pardo, 2008. "Les Français sont-ils prudents ? Patrimoine et risque sur les revenus des ménages," Working Papers halshs-00585994, HAL.
    9. Chou, Shin-Yi & Liu, Jin-Tan & Hammitt, James K., 2003. "National Health Insurance and precautionary saving: evidence from Taiwan," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1873-1894, September.
    10. Erik Hurst & Arthur Kennickell & Annamaria Lusardi & Francisco Torralba, 2005. "Precautionary Savings and the Importance of Business Owners," NBER Working Papers 11731, National Bureau of Economic Research, Inc.
    11. Atreya Chakraborty & Mark Kazarosian, 1999. "Portfolio Allocation of Precautionary Assets: Panel Evidence for the United States," Boston College Working Papers in Economics 432, Boston College Department of Economics.
    12. Arthur Kennickell & Annamaria Lusardi, 2004. "Disentangling the Importance of the Precautionary Saving Mode," NBER Working Papers 10888, National Bureau of Economic Research, Inc.
    13. Gomes, Fábio Augusto Reis & Ribeiro, Priscila Fernandes, 2015. "Estimating the elasticity of intertemporal substitution taking into account the precautionary savings motive," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 108-123.
    14. Johannes Geyer, 2011. "The Effect of Health and Employment Risks on Precautionary Savings," SOEPpapers on Multidisciplinary Panel Data Research 408, DIW Berlin, The German Socio-Economic Panel (SOEP).
    15. Kolsrud, Jonas, 2013. "Precaution and Risk Aversion: Decomposing the Effect of Unemployment Benefits on Saving," Working Paper Series 2013:14, Uppsala University, Department of Economics.
    16. Guariglia, Alessandra & Rossi, Mariacristina, 2004. "Private medical insurance and saving: evidence from the British Household Panel Survey," Journal of Health Economics, Elsevier, vol. 23(4), pages 761-783, July.
    17. Lugilde, Alba, 2018. "Does income uncertainty affect Spanish household consumption?," MPRA Paper 87110, University Library of Munich, Germany.
    18. Alessandra Guariglia & Byung‐Yeon Kim, 2003. "Wage arrears uncertainty and precautionary saving in Russia," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(3), pages 493-512, September.
    19. Masahiro Hori & Satoshi Shimizutani, 2006. "Did Japanese consumers become more prudent during 1998-1999? Evidence from household-level data," International Economic Journal, Taylor & Francis Journals, vol. 20(2), pages 197-209.
    20. Schunk, Daniel, 2007. "What determines the saving behavior of German households? : an examination of saving motives and saving decisions," Papers 07-10, Sonderforschungsbreich 504.

    More about this item

    Keywords

    Uncertainty; Income Risks; Precautionary Savings;
    All these keywords.

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:25189. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.