Economics Research Institute Study Paper
Utah State University Department of Economics
This paper quantifies the effects of precautionary saVIngs In a dynamic stochastic general equilibrium model. I show that Zeldes's estimate  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.
Nirei, Makoto, "Quantifying Borrowing Constraints and Precautionary Savings" (2005). Economic Research Institute Study Papers. Paper 308.