A GMM test of the precautionary saving hypothesis with nonexpected-utility preferences

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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

DOI: http://dx.doi.org/10.1080/00036840500367492

Affiliations: Department of Economics, Myongji University, Seoul 120-728, Korea

Publication date: January 20, 2006

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