The Time-Varying Volatility of Earnings and Aggregate Precautionary Savings

Arbeitspapier

Micro data are used for the US over the period 1968 - 1992 to estimate time-varying specifications for the conditional variance of earnings of individual households. Specifications estimated are standard and quadratic ARCH and GARCH processes. The cross-sectional mean of the estimated time-varying uncertainty of individual households is found to have a significant impact on aggregate consumption growth implying that earnings uncertainty and precautionary saving motives matter for the aggregate economy. The estimation of a buffer stock model of consumption with time-varying earnings uncertainty provides an estimated precautionary component in aggregate consumption growth. The importance of this component is found to decrease over the sample period, a result which is in line with the existing literature.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 11-144/2

Classification and Topics

• Classification: Wirtschaft ; Macroeconomics: Consumption; Saving; Wealth
• Subject: aggregate consumption ; earnings ; precaution ; ARCH errors

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Pozzi, Lorenzo
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/87240
• Last update: 10.03.2025, 11:45 AM CET