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Buffer-stock saving and households' response to income shocks

Author

Listed:
  • Giulio Fella

    (Queen Mary University of London)

  • Serafin Frache

    (Banco Central del Uruguay)

  • Winfried Koeniger

    (University of St.Gallen)

Abstract

We use the Italian Survey of Household Income and Wealth, a rather unique dataset with a long time dimension of panel information on consumption, income and wealth, to structurally estimate a buffer-stock saving model. We exploit the information contained in the joint dynamics of income, consumption and wealth to quantify the degree of insurance against income risk implied by the estimated model. We find that Italian households insure between 89 and 95 percent of a transitory and between 7 and 9 percent of a permanent income shock. Our estimates are in line with empirical estimates for the same dataset, that do not impose any model structure on the consumption process. This suggests that Italian households do not have access to significant insurance beyond that implied by self-insurance.

Suggested Citation

  • Giulio Fella & Serafin Frache & Winfried Koeniger, 2017. "Buffer-stock saving and households' response to income shocks," Working Papers 825, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:825
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    Cited by:

    1. Krueger, Dirk & Malkov, Egor & Perri, Fabrizio, 2024. "How do households respond to income shocks?," Journal of Economic Dynamics and Control, Elsevier, vol. 168(C).
    2. Krueger, Dirk & Malkov, Egor & Perri, Fabrizio, 2024. "Reprint of: How do households respond to income shocks?," Journal of Economic Dynamics and Control, Elsevier, vol. 169(C).
    3. Christian Stoltenberg & Arne Uhlendorff, 2022. "Consumption Choices and Earnings Expectations: Empirical Evidence and Structural Estimation," Tinbergen Institute Discussion Papers 22-049/VI, Tinbergen Institute.
    4. Dirk Krueger & Egor Malkov & Fabrizio Perri, 2023. "How Do Households Respond to Income Shocks?," Staff Report 655, Federal Reserve Bank of Minneapolis.
    5. Francesca Parodi, 2024. "Consumption Tax Cuts In A Recession," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(1), pages 117-148, February.

    More about this item

    Keywords

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    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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