Buffer-stock saving in a Krusell-Smith world

Arbeitspapier

A large body of microeconomic evidence supports Friedman (1957)'s proposition that household income can be reasonably well described as having both transitory and permanent components. We show how to modify the widely-used macroeconomic model of Krusell and Smith (1998) to accommodate such a microeconomic income process. Our incorporation of substantial permanent income shocks helps our model to explain a substantial part of the large degree of empirical wealth heterogeneity that is unexplained in the baseline Krusell and Smith (1998) model, even without heterogeneity in preferences.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 1633

Classification and Topics

• Classification: Wirtschaft ; Consumer Economics: Empirical Analysis ; Personal Income, Wealth, and Their Distributions ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Macroeconomics: Consumption; Saving; Wealth
• Subject: aggregate uncertainty ; household income process ; wealth inequality

Contributors, Location and Time

• Event: Geistige Schöpfung
• (who): Carroll, Christopher D. ; Slacalek, Jiri ; Tokuoka, Kiichi
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/154066
• Last update: 10.03.2025, 11:43 AM CET