TY  - JOUR
AU  - Parker,Jonathan
AU  - Preston,Bruce
TI  - Precautionary Saving and Consumption Fluctuations
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9196
PY  - 2002
Y2  - September 2002
UR  - http://www.nber.org/papers/w9196
L1  - http://www.nber.org/papers/w9196.pdf
N1  - Author contact info:
Jonathan Parker
Finance Department
Kellogg School of Management
Northwestern University
2001 Sheridan Road
Evanston, IL  60208-2001
Tel: 847/491-4113
Fax: 847/491-5719
E-Mail: Jonathan-Parker@Kellogg.Northwestern.edu

Bruce Preston
Department of Economics
Columbia University
420 West 118th Street
New York, NY 10027
Tel: 212/854-4092
Fax: 212/854-8059
E-Mail: bp2121@columbia.edu
AB  - This paper uses data on the expenditures of households to explain movements in the average growth rate of consumption in the U.S. from the beginning of 1982 to the end of 1997. We propose and implement a decomposition of consumption growth into series representing four proximate causes. These are new information, and three causes of predictable consumption growth: intertemporal substitution, changes in the preferences for consumption, and incomplete markets for consumption insurance. Incomplete markets for trading consumption in future states leads to statistically significant and countercyclical movements in expected consumption growth. The economic importance of precautionary saving rivals that of the real interest rate, but the relative importance of each source of movement in the volatility of consumption is not precisely measured.
ER  -