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The importance of precautionary saving motive among Indonesian households

  • Abdul Jalil, Ahmad Zafarullah
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    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.

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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25189.

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    Date of creation: 2009
    Date of revision:
    Publication status: Published in Journal of Indonesian Economy and Business 2.24(2009): pp. 221-231
    Handle: RePEc:pra:mprapa:25189
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    1. Richard Blundell & Thomas M. Stoker, 1994. "Consumption and the timing of income risk," IFS Working Papers W94/09, Institute for Fiscal Studies.
    2. Banks, James & Blundell, Richard & Brugiavini, Agar, 2001. "Risk Pooling, Precautionary Saving and Consumption Growth," Review of Economic Studies, Wiley Blackwell, vol. 68(4), pages 757-79, October.
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    7. Christopher D Carroll & Karen E Dynan & Spencer D Krane, 1999. "Unemployment Risk and Precautionary Wealth: Evidence from Households' Balance Sheets," Economics Working Paper Archive 416, The Johns Hopkins University,Department of Economics.
    8. 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.
    9. Skinner, Jonathan, 1988. "Risky income, life cycle consumption, and precautionary savings," Journal of Monetary Economics, Elsevier, vol. 22(2), pages 237-255, September.
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    12. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
    13. Albarran, P., 2000. "Income Uncertainty and Precautionary Saving: Evidence from Household Rotating Panel Data," Papers 0008, Centro de Estudios Monetarios Y Financieros-.
    14. Giucca, P. & Jappelli, T. & Terlizzese, D., 1992. "Earning Uncertainty and Precautionary Saving," Papers 161, Banca Italia - Servizio di Studi.
    15. Dynan, Karen E, 1993. "How Prudent Are Consumers?," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1104-13, December.
    16. Annamaria Lusardi, 2000. "Precautionary Saving and the Accumulation of Wealth," Working Papers 0012, Harris School of Public Policy Studies, University of Chicago.
    17. 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.).
    18. Mark Kazarosian, 1993. "Precautionary Savings- A Panel Study," Boston College Working Papers in Economics 247, Boston College Department of Economics.
    19. 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.
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