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The Size of the Precautionary Component of Household Saving: China and the U.S

  • Steven Lugauer

    (University of Notre Dame)

  • Nelson Mark

    (University of Notre Dame)

  • Horag Choi

    (Monash University)

We decompose the household saving rate into precautionary and non-precautionary components. When applied to Chinese households, who save 30% of disposable income, the precautionary motive accounts for two-thirds of that saving rate. For some admissible parameter values, the saving rate increases with the growth rate of income thus helping to explain why fast growing economies also have high saving rates. A finite-lifetimes version of the model produces the U-shaped age-saving rate profile observed in Chinese household data. Comparative calculations for U.S. households indicate that to match the U.S. data, the non-borrowing constraint must be relaxed.

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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 1046.

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Date of creation: 2013
Date of revision:
Handle: RePEc:red:sed013:1046
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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  1. 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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  8. Ogaki, Masao & Reinhart, Carmen M., 1998. "Intertemporal substitution and durable goods: long-run data," Economics Letters, Elsevier, vol. 61(1), pages 85-90, October.
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  10. Biederman, Daniel K. & Goenner, Cullen F., 2008. "A life-cycle approach to the intertemporal elasticity of substitution," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 481-498, March.
  11. Christopher D. Carroll, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 1-55.
  12. Patterson, Kerry D & Pesaran, Bahram, 1992. "The Intertemporal Elasticity of Substitution in Consumption in the United States and the United Kingdom," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 573-84, November.
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  15. repec:ebl:ecbull:v:30:y:2010:i:1:p:524-533 is not listed on IDEAS
  16. Masao Ogaki & Andrew Atkeson, 1997. "Rate Of Time Preference, Intertemporal Elasticity Of Substitution, And Level Of Wealth," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 564-572, November.
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