NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Importance of Precautionary Motives in Explaining Individual and Aggregate Saving

R. Glenn Hubbard, Jonathan Skinner, Stephen P. Zeldes

NBER Working Paper No. 4516 (Also Reprint No. r1920)
Issued in November 1994
NBER Program(s):   AG   PE   EFG

This paper examines predictions of a life-cycle simulation model -- in which individuals face uncertainty regarding their length of life, earnings, and out-of-pocket medical expenditures, and imperfect insurance and lending markets -- for individual and aggregate wealth accumulation. Relative to life-cycle or buffer-stock alternatives, our augmented life-cycle model better matches a variety of features of U.S. data, including: (1) aggregate wealth, (2) cross-sectional differences in wealth-age and consumption-age profiles by education group, and (3) short-run time-series co-movements of consumption and income.

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Published: Carnegie-Rochester Conference Series on Public Policy, 40 (June 1994)pp. 59-126

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