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A reconciliation of two alternative approaches towards buffer stock saving

By Alexander Michaelides


This paper shows that the two main models in the buffer stock saving literature can be nested in a model that varies the level of available social insurance. Equivalently, the assumption about the time series process for labor income (and social insurance during unemployment) is crucial in determining the level (but not the shape) of optimal consumption as a function of liquid wealth

Topics: HB Economic Theory
Publisher: Elsevier
Year: 2003
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Provided by: LSE Research Online
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    2. (1992). The Buffer-Stock Theory of Saving: doi
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    4. (1981). The use of time series processes to model the error structure of earnings in longitudinal data analysis.” doi

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