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BufferStockTheory.tex Theoretical Foundations of Buffer Stock Saving

By Christopher D. Carroll, Joseph Kaboski, Miles Kimball, Misuzu Otsuka, Damiano S, Adam Szeidl and Weifeng Wu For


“Buffer-stock ” versions of the dynamic stochastic optimizing model of saving are now standard in the consumption literature. This paper builds theoretical foundations for rigorous understanding of the main features of buffer stock models, including the existence of a target level of cash-to-permanent-income ratio and the proposition that aggregate consumption growth equals aggregate income growth in a small open economy populated by buffer stock consumers

Topics: Precautionary saving, buffer-stock saving, consumption, marginal propensity to consume, permanent income
Year: 2009
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