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Consumption over the life cycle in Poland

Author

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  • Arkadiusz Florczak
  • Janusz Jabłonowski

Abstract

The article attempts to verify the existence and strength of the buffer stock and precautionary savings’ behaviours of households in Poland, with the use of the dynamic stochastic model of permanent income with life cycle hypothesis (PILCH). The theoretical part of the model relies heavily on Gourinchas & Parker [14], while numerical solutions are based on Carroll [3]. The model includes partial insurance of households against idiosyncratic risk. The data relies on two household surveys: on budgets (HBS) and wealth (HWS), with parametrisation based on the 1% sample from the social insurance administrative data. The results generally seem to confirm the initial presumption on doubtful reflection of the dynamic economic reality of the fast converging market economy in the applied version of the model. The reason may stem from the lack of sufficiently stable economic environment through at least one full working career path of the household generation. Polish households, in general, are not (yet) patient enough to create buffer stock behaviour based on financial means, so precautionary behaviour prevails. The detailed results for decomposed types of households show proof for buffer stock behaviour for high school graduates from richer regions, and specific professions.

Suggested Citation

  • Arkadiusz Florczak & Janusz Jabłonowski, 2016. "Consumption over the life cycle in Poland," NBP Working Papers 252, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:252
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    File URL: https://static.nbp.pl/publikacje/materialy-i-studia/252_en.pdf
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    References listed on IDEAS

    as
    1. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
    2. Fatih Guvenen, 2011. "Macroeconomics with hetereogeneity : a practical guide," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 97(3Q), pages 255-326.
    3. Hamish Low & Costas Meghir & Luigi Pistaferri, 2010. "Wage Risk and Employment Risk over the Life Cycle," American Economic Review, American Economic Association, vol. 100(4), pages 1432-1467, September.
    4. Aleksandra Kolasa, 2012. "Life Cycle Income and Consumption Patterns in Transition," Working Papers 2012-17, Faculty of Economic Sciences, University of Warsaw.
    5. Michal Myck & Mateusz Najsztub, 2015. "Data and Model Cross-validation to Improve Accuracy of Microsimulation Results: Estimates for the Polish Household Budget Survey," International Journal of Microsimulation, International Microsimulation Association, vol. 8(1), pages 33-66.
    6. Fernández-Villaverde, Jesús & Krueger, Dirk, 2011. "Consumption And Saving Over The Life Cycle: How Important Are Consumer Durables?," Macroeconomic Dynamics, Cambridge University Press, vol. 15(5), pages 725-770, November.
    7. Michał Rubaszek, 2012. "Mortgage down-payment and welfare in a life-cycle model," Bank i Kredyt, Narodowy Bank Polski, vol. 43(4), pages 5-28.
    8. Zofia Barbara Liberda & Brunon Górecki & Marek Pęczkowski, 2004. "Saving from Permanent and Transitory Income. The Case of Polish Households," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 14.
    9. Fatih Guvenen, 2009. "An Empirical Investigation of Labor Income Processes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 58-79, January.
    10. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, December.
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    Cited by:

    1. Janusz Jabłonowski, 2021. "MPC out of Augmented Wealth in Poland," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 13(3), pages 253-286, September.
    2. Aleksandra Kolasa, 2017. "Life Cycle Income and Consumption Patterns in Poland," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 9(2), pages 137-172, June.

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    More about this item

    Keywords

    consumption over life cycle; precautionary savings; household wealth survey; household budget survey; simulated method of moments; data matching; endogenous gridpoints.;
    All these keywords.

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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