01887cam a22002297 4500001000600000003000500006005001700011008004100028100002500069245011500094260006600209490004100275500001700316520097400333530006101307538007201368538003601440710004201476830007601518856003701594856002601631w2336NBER20140722204010.0140722s1987 mau||||fs|||| 000 0 eng d1 aSkinner, Jonathan S.10aRisky Income, Life Cycle Consumption, and Precautionary Savingsh[electronic resource] /cJonathan S. Skinner. aCambridge, Mass.bNational Bureau of Economic Researchc1987.1 aNBER working paper seriesvno. w2336 aAugust 1987.3 aThis paper argues that precautionary savings against uncertain income comprise a large fraction of aggregate savings. A closed-form approximation for life cycle consumption subject to uncertain interest rates and earnings is derived by taking a second-order Taylor-Series approximation of the Euler equations. Using empirical measures of income uncertainty, I find that precautionary savings comprises up to 56 percent of aggregate life cycle savings. The derived expression for n-period optimal consumption is easily implemented for econometric estimation, and accords well with the exact numerical solution. Empirical comparisons of savings patterns among occupational groups using the Consumer Expenditure Survey contradict the predictions of the life cycle model. Riskier occupations, such as the self-employed and salespersons, save less than other occupations, although this finding may in part reflect unobservable differences in risk aversion among occupations. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w2336.4 uhttp://www.nber.org/papers/w2336 uurn:doi:10.3386/w2336