unemployment risk and precautionary wealth evidence from households balance sheets this paper examines precautionary behavior by relating job loss risk to household net worth we use existing best practice and some new strategies to deal with some problematic issues inherent in this literature regarding proxying uncertainty instrumentation and incorporating theoretical restrictions we do not find precautionary variation in the wealth holdings of households with low permanent income but do find precautionary effects for moderate and higher income households when the dependent variable is total net worth these findings are robust to several alternative specifications but we do not find precautionary responses in subaggregates of wealth that exclude home equity

are poor people credit constrained or myopic evidence from a south african panel credit constraints are an almost ubiquitous assumption in development economics yet direct evidence for credit constraints is limited and many observations consistent with credit constraints are equally compatible with myopic non forward looking consumption or precautionary saving using household panel data and a source of widely anticipated income in south africa this paper tests and rejects the standard consumption model with perfect capital markets then myopic consumption and precautionary saving are tested as alternative explanations for the observed jumps in expenditure the standard model with credit constraints cannot be rejected in favour of myopic consumption or precautionary saving

saving puzzles and saving policies in the united states in the past two decades the widely reported personal saving rate in the united states has dropped from double digits to below zero first we attempt to account for the decline in the national income and product accounts nipa saving rate the macroeconomic literature suggests that 40 50 per cent of the drop since 1988 can be attributed to households spending stock market capital gains another 30 per cent is accounting transfers from personal saving into government and corporate saving because of the way pensions and capital gains taxes are treated in the nipa second while nipa saving measures are well suited to measuring the supply of new funds for investment and capital accumulation it is not clear that they should be the target of government saving policies finally we emphasize that the nipa saving rate is not useful in judging whether households are preparing for retirement or other contingencies many households have accumulated significant wealth primarily through retirement saving vehicles and capital gains even as the saving rate slid there remains a segment of the population who save little and whose behaviour appears untouched either by the stock market boom or the slide in personal saving we explore reasons and policy options for their puzzling low saving rate copyright 2001 oxford university press

survey measures of risk aversion and prudence this paper utilizes a thought experiment conducted by the bank of italy to estimate absolute and relative risk aversion along with absolute and relative prudence for a broad cross section of italian households upper and lower bounds are calculated for each parameter and comparisons are made across socio demographic groups evidence is found of decreasing absolute risk aversion decreasing absolute prudence increasing relative risk aversion and increasing relative prudence

the hyperbolic consumption model calibration simulation and empirical evaluation ur preferences for the long run tend to conflict with our short run behavior when planning for the long run we intend to meet our deadlines exercise regularly and eat healthfully but in the short run we have little interest in revising manuscripts jogging on the stairmaster and skipping the chocolate souffleala mode delay of gratification is a nice long term goal but instant gratification is disconcertingly tempting this gap between long run intentions and short run actions is apparent across a wide range of behaviors including saving choices a 1997 survey found that 76 percent of respondents believe they should be saving more for retirement looking only at respondents who believed they were at an age where you should be seriously saving already the survey found that 55 percent reported being behind in their savings and only 6 percent reported being ahead farkas and johnson 1997 the report on the survey concluded t he gaps between people s atti tudes intentions and behavior are troubling and threaten increased insecurity and dissatisfaction for people when they retire americans are simply not doing what logic and their own reasoning suggests they should be doing a 1993 luntz webber merrill lynch survey found similar answers when baby boomers were asked what percentage of your annual household income do you think you should save for retirement and what percentage of your annual

risk and precautionary saving in two person households the existing literature on precautionary saving is based almost entirely on the assumption that the household acts as if it consisted of a single individual decision taker in reality saving decisions are typically taken by two person households this paper examines the implications of this observation for the existence of precautionary saving and shows that the assumption that the individual utility functions satisfy the conditions for precautionary saving to exist can imply that the household exhibits precautionary saving but only under strong assumptions on the type of risk change being considered

consumer response to tax rebates many households received income tax rebates in 2001 of 300 or 600 these rebates represented advance payments of the tax cut from the new 10 percent tax bracket based on a survey of a representative sample of households this paper finds that only 22 percent of households receiving the rebate would spent it instead they would either save it or use it to pay off debt this very low rate of spending represents a striking break with past behavior which would have suggested a much higher rate of spending the low spending rate implies that the tax rebate provided a very limited stimulus to aggregate demand this abstract was borrowed from another version of this item

public expenditure international specialisation and agglomeration abstract it is widely recognised that public sector purchasers tend to favour domestic suppliers we study the consequences of such home biased public procurement on international specialisation using a general equilibrium model with a monopolistically competitive sector we find that a country will specialise in that sector if it has relatively large home biased procurement the pull effect furthermore home biased procurement can counter agglomeration forces in that sector and thereby attenuate the overall degree of international specialisation the spread effect our empirical analysis conducted on input output data for the european union yields supporting evidence for the pull effect and some support for the spread effect

pension plan characteristics and framing effects in employee savings behavior abstract defined contribution pensions in many postsecondary institutions are funded by a combination of an employer premium and a mandatory employee premium individuals can also contribute to a supplemental savings account holding constant total compensation standard reasoning suggests that supplemental savings should depend negatively on the sum of the employer and employee pension contributions contrarily we find that the supplementary savings of professors are significantly more sensitive to employee contributions than to employer contributions this asymmetry is consistent with different marginal propensities to save out of the salary and pension components of compensation nevertheless impacts on lifetime utility are relatively modest

household saving micro theories and micro facts in this survey we review the recent theoretical and empirical literature on household saving and consumption the discussion is structured around a list of motives for saving and how well the standard theory captures these motives we show that almost all of the motives for saving that have been suggested in the informal saving literature can be captured in the standard optimizing model particular attention is given to recent work on the precautionary motive and its implications for saving and consumption behavior we also discuss the behavioral or psychological approach that eschews the use of standard optimization techniques and focuses instead on direct consideration on saving we provide a section on facts who save and how much we then discuss informally the recent decline in the u s saving rate and whether the theory is of much use in understanding this and other changes in aggregate saving rates over time we do not find any convincing explanation for the change in saving rates we also discuss some analyses of saving behavior over the life cycle addressing such questions as whether households save enough for retirement and whether the consumption patterns of older households can be rationalized within a simple life cycle model we also review a great number of studies of the consumption euler equations based on our analysis of the studies cited we conclude that there is still mixed evidence that consumption is excessively sensitive to income we also examine in depth the recent empirical literature on the precautionary motive we conclude that although some households do seem to have a significant precautionary motive at some points in their life cycle this motive is not so strong empirically as some investigators suggest

saving behavior and wealth accumulation in a pure lifecycle model with income uncertainty several models of economic behavior currently compete for an explanation of individual wealth accumulation and savings patterns in this paper we focus in particular upon the role of income uncertainty and the role played by a retirement period during which time expected earnings are zero we nd that income uncertainty can alter savings patterns over the lifecycle signi cantly with the greatest in uence on the wealth of young individuals however its in uence on the aggregate stock of wealth is less than earlier theoretical work indicates 2001 elsevier science b v all rights reserved jel classixcation e21 e25 e60

using subjective income expectations to test for excess sensitivity of consumption to predicted income growth abstract we test for precautionary saving and excess sensitivity of consumption to predicted income growth using a 1989 1993 panel survey of italian households that has measures of subjective income and inflation expectations these expectations provide a powerful instrument for predicting income growth the empirical specification controls for predictable changes in labor supply and allows a fairly general specification for the stochastic structure of the forecast error we find that consumption growth is positively correlated with the expected variance of income and uncorrelated with predicted income growth overall the results support the precautionary saving model

precautionary behavior migrant networks and household consumption decisions an empirical analysis using household panel data from rural china abstract we develop a test of precautionary behavior in the consumption decisions of rural agricultural households among surveyed households facing a median level of consumption risk 10 of savings can be attributed to a precautionary motive and this increases to 15 for households with consumption per capita below the poverty line we next use distant lags of local rainfall shocks uncorrelated with current consumption growth to identify the size of migrant networks outside the village and then present evidence that both poor and nonpoor households engage in less precautionary saving as the size of the village migrant network increases

the response of expenditures to anticipated income changes panel data estimates standard models of intertemporal allocation predict that the time path of expenditures should be independent of the time path of income recently two papers parker 1999 and souleles 1999 have suggested that u s households have a high marginal propensity to spend within year anticipated income changes we use an expenditure survey panel from spain to re examine this issue we exploit two important features of the spanish data first we have quarterly panel data that follows households for more than four quarters second we use the fact that workers are exogenously sorted into one of two payment schemes some receive the same amount each month of the year and others receive an extra payment in june and december the extra payment is large and predictable we examine the detailed pattern of expenditures over the year to see whether they differ between the two groups we fail to find even weak differences we complement this with a conventional euler equation analysis of excess sensitivity our predicting equation for quarterly earnings growth is much better than usual and is likely to give a powerful test of the hypothesis that predictable changes in income do not lead to changes in expenditure patterns the results of this analysis confirm the graphical analysis we find no evidence of excess sensitivity we conclude that households in normal times do smooth consumption over the year we suggest a reconciliation of our results with those of parker and souleles

life cycle consumption under social interactions abstract in this paper we examine how social interactions affect consumption decisions at various levels of aggregation in a life cycle economy made up of peer groups for this purpose we consider two analytically solvable life cycle models one under certainty equivalent behavior and one under prudence and explicitly allow for three different forms of social interactions in peer groups namely conformism altruism and jealousy we show that whether social interactions have any effects on individuals optimal consumption decisions critically depends on intertemporal rather than static considerations this is true regardless of whether individuals preferences are time separable or exhibit habit formation and whether information within peer groups is homogeneous or disparate it implies that analyzing the effects of social interactions in static rather than intertemporal settings is likely to be misleading we also show that social interactions when coupled with either habit formation or prudence can significantly strengthen the effects of habit formation or prudence in the direction of resolving two well known puzzles in the literature on the permanent income hypothesis namely excess smoothness and excess sensitivity

rules of thumb versus dynamic programming this paper studies decision making with rules of thumb in the context of dynamic decision problems and compares it to dynamic programming a rule is a fixed mapping from a subset of states into actions rules are compared by averaging over past experiences this can lead to favoring rules which are only applicable in good states correcting this good state bias requires solving the dynamic program we provide a generalframework and characterize the asymptotic properties we apply it to provide a candidate explanation for the sensitivity of consumption to transitory income jel eoo c63 c61 e21

do migrants really save more understanding the impact of remittances on savings in rural china abstract this article studies the impact of remittances on the savings behaviour of rural households in china using a primary survey undertaken by the authors in 2006 allowing for endogeneity and left censoring of remittances we find that the marginal propensity to save out of remittances is well below half of that out of other sources of incomes moreover we find no evidence of any direct effect of remittances on either capital input or gross output of farm production these findings are robust with respect to alternative definition of savings and are in line with recent studies which conclude that remittances are largely used for consumption purposes by rural chinese households

saving and income smoothing evidence from panel data abstract in this paper we use data from a panel of dutch households to investigate the behavior of savings as in campbell 1987 we examine whether the pattern of savings is consistent with the predictions of the rational expectations permanent income model we consider one important prediction of the model whether savings anticipate future income changes we test the predictions of the permanent income model in several ways first we propose some informal tests that exploit directly the information on expected future income changes available in the data we then perform a test of the model by setting up a vector autoregression var in terms of savings and income changes and by using euler equations expressed in terms of savings the empirical evidence shows that in all the specifications used in this paper the permanent income model is rejected contrary to the evidence from u s macro data we do not find that the excess sensitivity of consumption to income is responsible for the rejection of the model

delaying retirement to pay for college does sending children to college affect the contemporaneous labor supply of older workers drawing on biennial waves of the health and retirement survey from 1992 2006 the author tracks the labor supply of parents before and after they send their children to college and shows that parents delay retirement while they are financing their children s college education controlling for the total number of children who ever attend college and the total number of those whose college expenses are paid for by older parents she finds that mothers and fathers are more likely to be working by 10 5 percentage points for fathers and by 6 9 percentage points for mothers less likely to be collecting social security benefits and less likely to report that they are retired if they are currently paying for a child s college education of those working there is little evidence that paying for a child s education has any impact on work intensity

optimal saving rules for loss averse agents under uncertainty abstract most empirical studies assume only monotonic preferences for households behavioral research however provides substantial evidence that preferences for wealth are measured relative to a reference point in this paper we introduce and solve a two period consumption and savings model for a loss averse agent who measures utility from consumption relative to a benchmark level the solution is given as a parametric decision rule with one unknown parameter that depends on the distribution of the return on saving we find non linearity in the fraction of wealth saved where the specific saving pattern depends on the sign of the real return on savings the amount of saving is nondecreasing in initial wealth and the riskiness of the return distribution

the reaction of consumer spending and debt to tax rebates evidence from consumer credit data we use a new panel data set of credit card accounts to analyze how consumers responded to the 2001 federal income tax rebates we estimate the monthly response of credit card payments spending and debt exploiting the unique randomized timing of the rebate disbursement we find that on average consumers initially saved some of the rebate by increasing their credit card payments and thereby paying down debt but soon afterward their spending increased counter to the permanent income model spending rose most for consumers who were initially most likely to be liquidity constrained whereas debt declined most so saving rose most for unconstrained consumers

risk pooling precautionary saving and consumption growth in this paper we model the evolution of income risk and consumption growth we decompose the time series innovation of the income process into its common and cohort specific components from these we compute conditional variances which are used as separate risk terms in a consumption growth equation using a long series of british household data we exploit the time series variation to identify precautionary saving effects and find strong evidence of their importance specifically after allowing for demographic and labour market status there is an independent role for income risk in explaining consumption growth rather than the component that is common across cohorts however it is the cohort specific element that is important in determining changes in consumption growth this result points to a failure of between cohort insurance mechanisms

the economic importance of financial literacy theory and evidence this paper undertakes an assessment of a rapidly growing body of economic research on financial literacy we start with an overview of theoretical research which casts financial knowledge as a form of investment in human capital endogenizing financial knowledge has important implications for welfare as well as policies intended to enhance levels of financial knowledge in the larger population next we draw on recent surveys to establish how much or how little people know and identify the least financially savvy population subgroups this is followed by an examination of the impact of financial literacy on economic decision making in the united states and elsewhere while the literature is still young conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps a final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy jel a20 d14 g11 i20 j26

a comparison of saving rates microdata evidence from seventeen latin american and caribbean countries using microdata on expenditure and income for seventeen latin american and caribbean countries this paper presents stylized facts on saving behavior by age education income and place of residence counterfactual saving rates are computed by imposing the saving behavior the population distribution or the income distribution of two benchmark economies the united states and korea the results suggest that the difference in national saving rates between latin america and caribbean and the benchmark economies can mainly be attributed to differences in saving behavior of the population and to a lesser extent to differences in the distribution of the population by education levels other demographic or income distribution differences are not quantitatively important as explanations of saving rates

measuring intertemporal substitution the importance of method choices and selective reporting i examine 2 735 estimates of the elasticity of intertemporal substitution in consumption eis reported in 169 published studies the literature shows strong selective reporting researchers discard negative and insignicant estimates too often which pulls the mean estimate up by about 0 5 the reporting bias dwarfs the effects of methods with the exception of the choice between micro and macro data when i correct the mean for the bias for macro estimates i get zero even though the reported t statistics are on average two the corrected mean of micro estimates of the eis for asset holders is around 0 3 0 4 calibrations greater than 0 8 are inconsistent with the bulk of the empirical evidence jel e21 c83

divided government versus incumbency externality effect quasi experimental evidence on multiple voting decisions abstract this paper explores the causal relationship between vote outcomes in different elections we ask 1 does the partisan identity of the mayor influence the voter s decision in subsequent town council elections 2 do voters condition their vote for the mayor on the result of the last council election the analysis mainprod type flply relies on a regression discontinuity design focusing on close election outcomes based on municipal level data for germany we find that the party of the mayor can receive a significant bonus in the next town council election moreover voters punish mayor candidates of parties that performed strongly in earlier council elections throughout the paper we highlight how these findings can be related to an incumbency externality effect and to the theory of divided government

did japan s shopping coupon program increase spending abstract in march 1999 31 million shopping coupons worth 20 000 yen each were distributed to japanese families with children and to the elderly the coupons expired after six months and could only be used within the recipient s local community we use variation in the number of children across families and in the number of recipients across prefectures to measure the effect of the coupons on spending we find that coupons had a positive effect on spending on semi durables but no effect on spending on nondurables or services the marginal propensity to consume on semi durables was 0 1 0 2 when the coupons were distributed in march the results using regional variation provide stronger evidence that spending did not fall after the coupons had been redeemed

the relative income hypothesis abstract despite its theoretical dominance the empirical case in favor of the permanent income hypothesis is weak contrary to one of its basic implications a growing body of evidence suggests that rich households save a higher proportion of their permanent income than poor households we propose an overlapping generations economy where households care about relative consumption as a result an individual s consumption is driven by the comparison of his lifetime income and the lifetime income of his reference group a permanent income version of duesenberry s 1949 relative income hypothesis across households the savings rate increases with income while aggregate savings are independent of the income distribution

public debt in economies with heterogeneous agents abstract we study public debt in competitive equilibria in which a government chooses transfers and taxes optimally and in addition decides how thoroughly to enforce debt contracts if the government enforces perfectly asset inequality is determined in an optimum competitive equilibrium but the level of government debt is not welfare increases if private debt contracts are not enforced borrowing frictions let the government gather monopoly rents that come from issuing public debt without facing competing private borrowers regardless of whether the government chooses to enforce private debt contracts the level of initial government debt does not affect an optimal allocation

the effects of government transfers on monthly cycles in drug abuse hospitalization and mortality this paper analyzes the monthly patterns of adverse outcomes due to the consumption of illegal drugs by recipients of government transfer payments we find evidence that certain subpopulations on government cash aid significantly increase their consumption of drugs when their checks arrive at the beginning of the month and as a result experience adverse events including hospitalization and death using data from california we find that the overall rate of drug related hospital admissions increases abruptly at the beginning of the month with admissions increasing 23 during the first five days of the month we find that this cycle is driven largely by recipients of supplemental security income ssi ssi recipients also experience an abrupt 22 increase in within hospital mortality after receiving their checks these findings suggest that full wallets adversely affect some aid recipients and that policymakers should explore alternate disbursement regimes such as a staggered disbursement schedule or in kind support that have the potential to reduce the rate of adverse events

the life cycle model of consumption and saving a central implication of life cycle models is that agents smooth consumption we review the empirical evidence on smoothing at frequencies from within the year up to across a lifetime we find that life cycle models particular those which incorporate realistic features of markets and goods have more empirical successes than failures we also show that some apparent deviations from theoretical predictions imply very small welfare losses for agents finally we emphasize that the coherence of life cycle models imposes an important discipline when incorporating new features into models

environmental regulation of households an empirical review of economic and psychological factors abstract the literature on sustainable consumption and environmental regulation of household behavior is dominated by conceptual and normative approaches as a result many suggestions lack a firm empirical basis to overcome this deficiency econometric studies in three areas of environmentally relevant activities of households are reviewed residential use of energy generation of solid waste and recycling and residential use of water next to price and income elasticities attention is devoted to individual socio economic features and psychological factors such as attitudes knowledge perceptions and values potential psychological determinants and related insights are further examined by discussing a range of representative and illustrative statistical psychological studies of environmental behavior one important general finding is that there are very few empirical studies that systematically combine socio economic and psychological determinants a range of insights for environmental policy is derived and research recommendations are offered

further evidence of excess sensitivity of consumption nonseparability among goods and heterogeneity across households the standard theoretical framework for analysing households intertemporal decisions is the life cycle permanent income model among its implications testing the model allows to analyse the response of consumption to fiscal policy however the empirical literature with microdata has yielded mixed results this article examines the sensitivity of the results to the assumption of separability among goods and of homogeneity across households for that purpose we test a rational expectations permanent income model with household data drawn from the spanish family expenditure survey this survey contains detailed information on total expenditure and the income presents large exogenous quarterly changes due to an institutional feature the article shows that assuming separability among commodities biases the test against the model when separability is not imposed we show that the rejection of the model depends on heterogeneity across households in terms of their members being unemployed or not for those

the response of household consumption to income tax refunds a central implication of the life cycle or permanent income theory is that consumption should not respond to predictable fluctuations in income tests of this implication have yielded mixed results especially on micro data angus deaton 1992 martin browning and annamaria lusardi 1996 in large part this might be due to the difficulties of isolating the predictable component of income at the micro level most tests proceed by instrumenting for income but since the available instruments are typically poor such tests might be prejudiced against finding significant excess sensitivity of consumption to income john shea 1995 also it is not clear how closely the resulting econometric predictions of income coincide with agents actual expectations of income to avoid these difficulties this paper examines the response of household consumption to a particular type of income that is both predictable and transitory income tax refunds since a refund depends on events in the previous calendar year it is predictable income as regards consumption in the year of its receipt consequently under the life cycle theory consumption should not increase on receipt of a refund 2 in addition to testing the canonical model of consumption this paper provides estimates interpretable as the marginal propensity to consume mpc out of refunds since federal tax refunds now amount to over 80 billion per year averaging well over 1 000 per refund these estimates are of interest in themselves more generally they bear on the impact of even preannounced and temporary changes in fiscal policy the paper begins by surveying related studies in section i section ii describes the data the consumer expenditure survey cex which of the leading u s micro data sets has the most comprehensive coverage of expenditure the empirical specification is set out in section hi section iv reports the results and section v concludes

investment choice and asset allocation of italian households the discrete continuous approach financial and monetary policies are considered to be effective depending on the reaction of financial markets which are increasingly populated by households in this article from intertemporal settings i derive a financial almost ideal fai demand system and i estimate it by highlighting the determinants of both limited participation to financial markets and asset substitutability complementarity in the allocating stage finally the wealth elasticities provide some further insights on the low diffusion of the newer and more complex financial instruments across italian households

the distribution of wealth with uncertain income it is well known that an uncertain income stream will induce individuals to save if they are forward looking in this paper we investigate the consequences of such saving on the distribution of wealth among households the inquiry is motivated by the fact that both the dispersion of the us wealth distribution and the variance of transitory income have increased in the recent past surprisingly we find that an increase in earnings uncertainty is more likely to decrease than increase the inequality in wealth holdings

precautionary wealth accumulation this paper provides theoretical foundations for when individual and aggregate wealth accumulation increase as earnings risk increases stated in terms of a simple picture the problem addressed in this paper is to find sufficient conditions such that the pattern in figure 1 holds figure 1 describes a situation in which an individual s expected wealth accumulation profile is weakly greater at each age over the life cycle whenever the individual faces one earnings process that is riskier than another earnings process other things equal two important open questions can be answered by finding sufficient conditions for the pattern in figure 1 to occur first there is the question of when theory predicts that households that face more earnings risk have more expected wealth accumulation at any point in the life cycle than households that face less earnings risk the development of such a theory would be helpful as there is a sizeable empirical literature related to this question which is surveyed by browning and lusardi 1996 second there is the question of when theory predicts that aggregate wealth accumulation increases as earnings risk increases much of the interest in the precautionary savings literature is based on the possibility that an important part of aggregate wealth is due to uninsured earnings risk this question can also be answered with figure 1 the idea is to treat the expected wealth profile of one individual as the realized average wealth profile of a large number of similarly situated individuals the law of large numbers justifies this when shocks are independent across individuals and thus earnings risk is idiosyncratic since aggregate wealth holding is a weighted sum of the average wealth holdings of individuals at different ages an upward shift of the expected wealth profile of all agents then implies that aggregate wealth holding increases with increases in earnings risk other things equal this paper provides the first general answer to when the pattern in figure 1 occurs in the context of a multi period model with independent earnings shocks the answer is given at two levels in terms of properties of the decision rule for savings i e the savings function and in terms of preferences a savings function maps an individual s current state e g current wealth and earnings and age into savings or wealth carried into the next model period given a specific earnings process since economists are familiar with the merits of sufficient conditions stated in terms of preferences i will try to motivate why sufficient conditions stated in terms of the savings function are interesting first they are widely applicable they apply to theories where savings decisions maximize a utility function or are given by a rule of thumb they also apply to models where there is wage risk and there are both consumption saving and labour leisure decisions second in so far as the savings function can be estimated it is useful for an empirical

aggregate precautionary savings when is the third derivative irrelevant abstract when are aggregate precautionary savings positive we address this question in the context of a general equilibrium model where infinitely lived agents receive idiosyncratic labor endowment shocks hold a risk free asset to smooth consumption and face a liquidity constraint we prove that 1 the steady state capital stock is always larger in any equilibrium with idiosyncratic shocks and a liquidity constraint than without idiosyncratic shocks i e aggregate precautionary savings are positive as long as consumers are risk averse and 2 aggregate precautionary savings occurs if and only if the liquidity constraint binds for some agents

psychological characteristics and household savings behavior the importance of accounting for latent heterogeneity abstract we employ a finite mixture model with maximum likelihood ml estimation to analyze latent heterogeneity in the relationship between psychological characteristics and household savings behavior in a one step ml estimation approach we estimate a class membership model and a behavioral model of the classes jointly adopting this approach enables us to simultaneously assess how socio demographic characteristics affect class membership probabilities and estimate class specific regression coefficients to test whether psychological characteristics predict savings behavior differently across latent classes we apply this approach to a representative sample of uk households n 3382 and identify two different latent classes striving versus established households we find that the relationship between psychological characteristics and savings behavior differs across these two classes demonstrating the importance of accounting for latent heterogeneity when studying the drivers of savings behavior our results have implications for policymakers attempting to improve household savings behavior

risk and savings a taxonomy abstract the effect of risk on savings depends not just on preferences but also on the type of risk this helps to explain why the empirical literature reports positive effects for developed countries but negative effects for developing countries

home is where the equity is mortgage refinancing and household consumption applying a permanent income model with exogenous liquidity constraints and mortgage behavior household refinancing when mortgage interest rates are historically high and rising a persistent empirical puzzle is explained using data from the panel study of income dynamics households experiencing an unemployment shock and having limited initial liquid assets to draw upon are shown to have been 25 more likely to refinance 1991 94 on average such liquidity constrained households converted over two thirds of every dollar of equity they removed into current consumption as mortgage rates plummeted 1991 94 producing an estimated expenditure stimulus of at least 28 billion

ageing in place exploring elderly people s housing preferences in spain the greater visibility of societal ageing and higher share of individuals with disabilities have created new challenges for housing and urban policies housing needs can influence individual choice of living environment and the willingness to undertake housing improvements this is especially relevant in southern european countries where the family is still the main provider of care for the elderly this study makes an empirical analysis of the underlying preferences for housing and perceptions of housing suitability in the event of dependency in old age drawing upon a new representative database of the spanish population it explores whether preferences are stable for different age groups and different levels of individual affluence calculated in terms of income and housing assets the study found preferences for ageing in place which became stronger as individuals grew older the effect of affluence or the wealth effect was considerable acting independently and exhibiting higher health needs

consumption versus expenditure previous authors have documented a dramatic decline in food expenditures at the time of retirement we show that this is matched by an equally dramatic rise in time spent shopping for and preparing meals using a novel data set that collects detailed food diaries for a large cross section of u s households we show that neither the quality nor the quantity of food intake deteriorates with retirement status we also show that unemployed households experience a decline in food expenditure and food consumption commensurate with the impact of job displacement on permanent income these results highlight how direct measures of consumption distinguish between anticipated and unanticipated shocks to income whereas measures of expenditures obscure the distinction

3rd of tha month do social security recipients smooth consumption between checks this paper examines the response of consumption expenditures to the monthly receipt of social security checks since the amount and arrival date of these checks are known to the recipients the basic life cycle permanent income hypothesis lcpih predicts that consumption should not respond to the receipt of these checks using daily diary data from the consumer expenditure survey this paper finds evidence that both the dollar amount and probability of expenditures increase immediately following the receipt of this check most relevant to testing the lcpih categories of instantaneous consumption expenditure such as food away from home increase on the check arrival date the response is found primarily amongst households for whom social security is the primary source of income however the magnitude of the estimated responses are relatively small and do not suggest that the utility losses are large from this non smoothing behavior this abstract was borrowed from another version of this item