• DOI:10.1162/003355397555109
Corpus ID: 14047708

Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis

@article{Carroll1996BufferStockSA,
  title={Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis},
  author={C. Carroll},
  journal={Macroeconomics eJournal},
  year={1996}
}

C. Carroll

Published 1996

Economics

Macroeconomics eJournal

This paper argues that the typical household's saving is better described by a traditional version of the Life Cycle/Permanent Income Hypothesis (LC/PIH) model. Buffer-stock behavior emerges if consumers with important income uncertainty are sufficiently impatient. In the traditional model, consumption growth is determined solely by tastes; in contrast, buffer-stock consumers set average consumption growth equal to average labor income growth, regardless of tastes. The model can explain three… CONTINUE READING

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