Home > Publications . Search All . Browse All . Country . Browse PSC Pubs . PSC Report Series

PSC In The News

RSS Feed icon

Bailey and Danziger's War on Poverty book reviewed in NYT

Bloomberg cites MTF data in story on CDC's anti-smoking ads for e-cigarettes

Bound says notion that foreign college students are displacing U.S. students "isn't right"

Highlights

U-M ranked #1 in Sociology of Population by USN&WR's "Best Graduate Schools"

PAA 2015 Annual Meeting: Preliminary program and list of UM participants

ISR addition wins LEED Gold Certification

PSC Fall 2014 Newsletter now available

Next Brown Bag

Mon, April 6
Jinkook Lee, Wellbeing of the Elderly in East Asia

Miles Kimball photo

Precautionary Saving and Consumption Smoothing across Time and Possibilities

Publication Abstract

Kimball, Miles, and Philippe Weil. 2009. "Precautionary Saving and Consumption Smoothing across Time and Possibilities." Journal of Money Credit and Banking, 41(2-3): 245-284.

This paper examines how aversion to risk and aversion to intertemporal substitution determine the strength of the precautionary saving motive in a two-period model with Selden/Kreps-Porteus preferences. For small risks, we derive a measure of the strength of the precautionary saving motive that generalizes the concept of "prudence" introduced by Kimball (1990b). For large risks, we show that decreasing absolute risk aversion guarantees that the precautionary saving motive is stronger than risk aversion, regardless of the elasticity of intertemporal substitution. Holding risk preferences fixed, the extent to which the precautionary saving motive is stronger than risk aversion increases with the elasticity of intertemporal substitution. We derive sufficient conditions for a change in risk preferences alone to increase the strength of the precautionary saving motive and for the strength of the precautionary saving motive to decline with wealth. Within the class of constant elasticity of intertemporal substitution, constant-relative risk aversion utility functions, these conditions are also necessary.

DOI:10.1111/j.1538-4616.2009.00205.x (Full Text)

PMCID: PMC2913051. (Pub Med Central)

Browse | Search : All Pubs | Next