A GMM test of the precautionary saving hypothesis with nonexpected-utility preferences
Abstract:Using GMM estimation with the US data from January 1967 to April 2003, the precautionary saving hypothesis is tested using time-varying consumption uncertainty and a nonexpected-utility model of intertemporal optimal consumption. Overidentifying restrictions of the model specification are also tested for both expected and nonexpected utility using Hansen's J -statistics. It was found that the precautionary saving hypothesis did not hold under expected-utility preferences but did hold partly under nonexpected-utility preferences.
Document Type: Research Article
Affiliations: Department of Economics, Myongji University, Seoul 120-728, Korea
Publication date: 2006-01-20