TY  - JOUR
AU  - Carroll,Christopher D.
AU  - Samwick,Andrew A.
TI  - How Important is Precautionary Saving?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5194
PY  - 1995
Y2  - July 1995
UR  - http://www.nber.org/papers/w5194
L1  - http://www.nber.org/papers/w5194.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  - We estimate the fraction of the wealth of a sample of PSID respondents that is held because some households face greater income uncertainty than others.  We first derive an equation characterizing the theoretical relationship between wealth and uncertainty in a buffer-stock model of saving.  Next, we estimate that equation using PSID data; we find strong evidence that households engage in precautionary saving.  Finally, we simulate the wealth distribution that would prevail if all households had the same uncertainty as the lowest-uncertainty group.  We find that between 39 and 46 percent of wealth in our sample is attributable to uncertainty differentials across groups.
ER  -