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

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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.
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Document Type: Research Article

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

Publication date: 2006-01-20

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