Precautionary saving in a Markovian earnings environment

Bar Light

doi:10.1016/j.red.2017.12.004

Precautionary saving in a Markovian earnings environment

Bar Light

Stanford University

Research output: Contribution to journal › Article › peer-review

10 Scopus citations

Abstract

Under what conditions does an increase in the future income risk (in the sense of second order stochastic dominance) result in an increase in savings? This paper establishes a novel sufficient condition for the case in which income follows a Markov process. The sufficient condition applies to a broad class of preferences and processes that are often adopted in the applied literature.

Original language	English
Pages (from-to)	138-147
Number of pages	10
Journal	Review of Economic Dynamics
Volume	29
DOIs	https://doi.org/10.1016/j.red.2017.12.004
State	Published - Jul 2018
Externally published	Yes

Keywords

Comparative statics
Consumption
Income uncertainty
Precautionary savings
Prudence
Savings

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10.1016/j.red.2017.12.004

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title = "Precautionary saving in a Markovian earnings environment",

abstract = "Under what conditions does an increase in the future income risk (in the sense of second order stochastic dominance) result in an increase in savings? This paper establishes a novel sufficient condition for the case in which income follows a Markov process. The sufficient condition applies to a broad class of preferences and processes that are often adopted in the applied literature.",

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year = "2018",

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Precautionary saving in a Markovian earnings environment

Abstract

Keywords

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