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Buffer-stock savings and households' wealth response to income shocks

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  • Koeniger, Winfried
  • Fella, Giulio
  • Frache, Serafin

Abstract

We structurally estimate a buffer-stock savings model using panel data from the Italian Survey of Household Income and Wealth that contains information not only about income and consumption but also wealth. We exploit the information about wealth and the responses of wealth and consumption to income shocks over different time horizons to infer the degree of insurance against permanent and transitory income shocks. The estimated model implies that Italian households can insure 5-10% of a permanent shock and 90-95% of a transitory shock. The degree of insurance against permanent shocks is at the low end of the range of existing estimates for the U.S.

Suggested Citation

  • Koeniger, Winfried & Fella, Giulio & Frache, Serafin, 2016. "Buffer-stock savings and households' wealth response to income shocks," Annual Conference 2016 (Augsburg): Demographic Change 145507, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc16:145507
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    References listed on IDEAS

    as
    1. Carroll, Christopher D., 2009. "Precautionary saving and the marginal propensity to consume out of permanent income," Journal of Monetary Economics, Elsevier, vol. 56(6), pages 780-790, September.
    2. Thomas Hintermaier & Winfried Koeniger, 2011. "On the Evolution of the US Consumer Wealth Distribution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 317-338, April.
    3. Orazio P. Attanasio & Nicola Pavoni, 2011. "Risk Sharing in Private Information Models With Asset Accumulation: Explaining the Excess Smoothness of Consumption," Econometrica, Econometric Society, vol. 79(4), pages 1027-1068, July.
    4. Fatih Guvenen & Anthony A. Smith, 2014. "Inferring Labor Income Risk and Partial Insurance From Economic Choices," Econometrica, Econometric Society, vol. 82, pages 2085-2129, November.
    5. Joseph G. Altonji & Aloysius Siow, 1987. "Testing the Response of Consumption to Income Changes with (Noisy) Panel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 293-328.
    6. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
    7. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-976, October.
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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

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