A Direct Test of the Buffer-Stock Model of Saving

Recent models with liquidity constraints and impatience emphasize that consumers use savings to buffer incomefluctuations. When wealth is below an optimal target, consumers try to increase their buffer stock of wealth bysaving more, while, if wealth is above target, they increase consumption. This important implication of thebuffer stock model of saving has not been subject to direct empirical testing...

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Year of publication:	2005-12-01
Authors:	Jappelli, Tullio ; Padula, Mario ; Pistaferri, Luigi
Institutions:	University of Salerno / Centre for Studies in Economics and Finance

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1. Introduction
2. Deriving testable implications of buffer stock behavior
2.1. Test interpretation
2.2. The simulated covariance ratio
3. Data
4. Testing the buffer stock model
4.1. Baseline estimates
4.2. Group estimates
4.3. Impatience
4.4. Measurement error
4.5. Further sensitivity checks
5. The wealth-income ratio of young households
6. Conclusions
References
Appendix

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