Precautionary saving measures the consequences of uncertainty for the rate of change (and therefore the level) of wealth. The qualitative aspects of precautionary saving theory are now well established: an increase in uncertainty will increase the level of saving, but will reduce the marginal propensity to save. Quantitatively, theory combined with empirical estimates of risk aversion suggests that precautionary saving and precautionary wealth should be quite large. More direct empirical evidence on precautionary saving suggests that precautionary effects on saving are substantial, but the magnitude of the effects is disputed, and the different estimates are not all expressed in comparable units.
Calibration Consumption function Elasticity of intertemporal substitution Euler equations Impatience Liquidity constraints Perfect foresight Precautionary saving Precautionary savings Precautionary wealth Preferences Risk aversion Time consistency Uncertainty
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