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Theoretical Foundations of Buffer Stock Saving

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Christopher D. Carroll

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Abstract

"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 characteristics of buffer stock models, including the existence of a target level of wealth and the proposition that aggregate consumption growth equals aggregate income growth in a small open economy populated by buffer stock consumers.

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Paper provided by The Johns Hopkins University,Department of Economics in its series Economics Working Paper Archive with number 517.

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Date of creation: Oct 2004
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Handle: RePEc:jhu:papers:517

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  1. Bewley, Truman, 1977. "The permanent income hypothesis: A theoretical formulation," Journal of Economic Theory, Elsevier, vol. 16(2), pages 252-292, December. [Downloadable!] (restricted)
  2. Attanasio, Orazio P & Weber, Guglielmo, 1995. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1121-57, December. [Downloadable!] (restricted)
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  3. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-45, March. [Downloadable!] (restricted)
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  4. Boud, John III, 1990. "Recursive utility and the Ramsey problem," Journal of Economic Theory, Elsevier, vol. 50(2), pages 326-345, April. [Downloadable!] (restricted)
  5. Cagetti, Marco, 2003. "Wealth Accumulation over the Life Cycle and Precautionary Savings," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(3), pages 339-53, July.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ashok Guha & Brishti Guha, 2008. "Utility functions, future consumption targets and subsistence thresholds," Economics Bulletin, Economics Bulletin, vol. 4(30), pages 1-4. [Downloadable!]
  2. David Card & Raj Chetty & Andrea Weber, 2006. "Cash-on-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market," NBER Working Papers 12639, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Christopher D. Carroll, 2005. "The Method of Endogenous Gridpoints for Solving Dynamic Stochastic Optimization Problems," NBER Technical Working Papers 0309, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Thomas Post & Helmut Gründl & Joan Schmit & Anja Zimmer, 2008. "The Impact of Individual Investment Behavior for Retirement Welfare: Evidence from the United States and Germany," SFB 649 Discussion Papers SFB649DP2008-037, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  5. Mario Padula & Università di Salerno, 2006. "An approximate consumption function," Computing in Economics and Finance 2006 133, Society for Computational Economics. [Downloadable!]
    Other versions:
  6. Fabian Valencia, 2008. "Banks' Precautionary Capital and Credit Crunches," IMF Working Papers 08/248, International Monetary Fund. [Downloadable!]
  7. Brishti Guha & Ashok S. Guha, 2008. "Utility functions, future consumption targets and subsistence thresholds," Working Papers 16-2008, Singapore Management University, School of Economics. [Downloadable!]
  8. Enrique G. Mendoza & P. Marcelo Oviedo, 2006. "Fiscal Policy and Macroeconomic Uncertainty in Developing Countries: The Tale of the Tormented Insurer," NBER Working Papers 12586, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Horag Choi & Nelson C. Mark & Donggyu Sul, 2007. "Endogenous Discounting, the World Saving Glut and the U.S. Current Account," NBER Working Papers 13571, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Michael Reiter, 2006. "Solving Heterogeneous-Agent Models by Projection and Perturbation," Economics Working Papers 972, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  11. John C. Bluedorn, 2005. "Hurricanes: Intertemporal Trade and Capital Shocks," Economics Series Working Papers 241, University of Oxford, Department of Economics. [Downloadable!]
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  12. James Feigenbaum, 2005. "Heterogeneity vs Uncertainty in Anticipation of a Borrowing Constraint," Working Papers 230, University of Pittsburgh, Department of Economics, revised Jan 2005. [Downloadable!]
  13. James Feigenbaum & Geng Li, 2008. "Lifecycle dynamics of income uncertainty and consumption," Finance and Economics Discussion Series 2008-27, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  14. Tullio Jappelli & Mario Padula & Luigi Pistaferri, 2005. "A Direct Test of the Buffer-Stock Model of Saving," CSEF Working Papers 150, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
    Other versions:
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