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Life-cycle Wealth Accumulation and Consumption Insurance

Author

Listed:
  • Claudio Campanale

    (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)

  • Marcello Sartarelli

    (Departamento de Fundamentos del Analisis Economico, Universidad de Alicante, Spain.)

Abstract

Households appear to smooth consumption in the face of income shocks much more than implied by life-cycle versions of the standard incomplete market model under reference calibrations. In the current paper we explore in detail the role played by the life-cycle profile of wealth accumulation. We show that a standard model parameterized to match the latter can rationalize between 83 and more than 97 percent of the consumption insurance against permanent earnings shocks empirically estimated by Blundell, Pistaferri and Preston (2008), depending on the tightness of the borrowing limit.

Suggested Citation

  • Claudio Campanale & Marcello Sartarelli, 2018. "Life-cycle Wealth Accumulation and Consumption Insurance," Working papers 055, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    • Handle: RePEc:tur:wpapnw:055
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    References listed on IDEAS

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    Cited by:

    1. Claudio Campanale, 2020. "Consumption insurance and education: A puzzle?," Working papers 069, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.

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    More about this item

    Keywords

    Precautionary savings; Epstein-Zin; Consumption insurance coefficients; Life-cycle.;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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