TY  - JOUR
AU  - Carroll,Christopher D.
TI  - Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5788
PY  - 1996
Y2  - October 1996
UR  - http://www.nber.org/papers/w5788
L1  - http://www.nber.org/papers/w5788.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
AB  - This paper argues that the typical household's saving is better described by a traditional version of the Life Cycle/Permanent Income Hypothesis (LC/PIH) model.  Buffer-stock behavior emerges if consumers with important income uncertainty are sufficiently impatient.  In the traditional model, consumption growth is determined solely by tastes; in contrast, buffer-stock consumers set average consumption growth equal to average labor income growth, regardless of tastes.  The model can explain three empirical puzzles: the [1991]; the the 1930's; and the temporal stability of the household age/wealth profile despite the unpredictability of idiosyncratic wealth changes.
ER  -