Document Type

Article

Journal/Book Title/Conference

Economics Research Institute Study Paper

Volume

11

Publisher

Utah State University Department of Economics

Publication Date

2005

Rights

Copyright for this work is held by the author. Transmission or reproduction of materials protected by copyright beyond that allowed by fair use requires the written permission of the copyright owners. Works not in the public domain cannot be commercially exploited without permission of the copyright owner. Responsibility for any use rests exclusively with the user. For more information contact the Institutional Repository Librarian at digitalcommons@usu.edu.

First Page

1

Last Page

29

Abstract

This paper quantifies the effects of precautionary saVIngs In a dynamic stochastic general equilibrium model. I show that Zeldes's estimate [14] of the excess consumption growth for low asset holders is consistent with an incomplete market model when a borrowing constraint point is set at three months' worth of average wage income. The hypotheses of no-borrowing specification and solvency-constraint specification are rejected by a test distribution derived from the stationary equilibrium distribution. At the estimated borrowing constraint, an increase in endowment shock within the range of empirical findings can cause 1.2% increase in saving rate and 10% increase in capital.

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