TY  - JOUR
AU  - Carroll,Christopher D.
AU  - Samwick,Andrew A.
TI  - The Nature of Precautionary Wealth
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5193
PY  - 1995
Y2  - July 1995
UR  - http://www.nber.org/papers/w5193
L1  - http://www.nber.org/papers/w5193.pdf
N1  - Author contact info:
Christopher D. Carroll
Department of Economics
Mergenthaler 440
Johns Hopkins University
Baltimore, MD 21218
Tel: 410/516-7602
Fax: 410/516-7600
E-Mail: ccarroll@jhu.edu

Andrew Samwick
6106 Rockefeller Hall
Department of Economics
Dartmouth College
Hanover, NH 03755-3514
Tel: 603/646-2893
Fax: 603/646-2122
E-Mail: andrew.samwick@dartmouth.edu
AB  - This paper uses the Panel Study of Income Dynamics to provide some of the first direct evidence that wealth is systematically higher for consumers with greater income uncertainty.  However, the apparent pattern of precautionary saving is not consistent with a standard parameterization of the life cycle model in which consumers are patient enough to begin saving for retirement early in life: wealth is estimated to be less sensitive to uncertainty in permanent income than implied by that model.  Instead, our results suggest that over most of their working lifetime, consumers behave in accordance with the 'buffer-stock' models of saving described in Carroll (1992) or Deaton (1991), in which consumers hold wealth principally to insulate consumption against near term fluctuations in income.
ER  -