Precautionary saving in a Markovian earnings environment

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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 languageEnglish
Pages (from-to)138-147
Number of pages10
JournalReview of Economic Dynamics
StatePublished - Jul 2018
Externally publishedYes


  • Comparative statics
  • Consumption
  • Income uncertainty
  • Precautionary savings
  • Prudence
  • Savings


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