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In the 21st century, various unexpected events such as the financial crisis and COVID‐19 have exacerbated the uncertainty of economic policies, whose influence, especially those at the firm level, on the labor share remains to be studied. This article constructs the firm‐level economic policy uncertainty (FEPU) through text analysis and empirically analyzes its impact on labor share. Empirical evidence suggests that FEPU can significantly decrease labor share, particularly among firms with financing constraints, low productivity, and high market shares. And the results hold up after a series of robustness tests. Moreover, mechanism analysis indicates that precautionary saving motives play a crucial role in driving firms' reduction in labor share rather than capital substitution motives. Finally, we further find that although FEPU harms the labor share, it significantly reduces executive payment and has no significant effect on the payment of ordinary employees, thus reducing within‐firm inequality. This study enhances our comprehension of how economic policy uncertainty at the firm level affects firm behavior and provides theoretical and practical guidance for increasing labor share and employee welfare. [ABSTRACT FROM AUTHOR]

Recent developments in dynamic consumption theory have shown that risk-loving agents, much like their risk-averse analogues, can exhibit downside risk aversion (prudence) and thus demand precautionary savings. I complement this finding by showing that risk-seeking preferences also magnify the role of natural borrowing limits in shaping consumers' behavior, causing risk lovers to increase savings against income uncertainty in cases where risk averters would not: even imprudent risk lovers may engage in precautionary saving. [ABSTRACT FROM AUTHOR]

The aim of this paper is to study empirically the existence of precautionary saving in Spain at the end of the Great Recession using the micro data provided by the Spanish Survey of Household Finances. Using the panel component of these data, I construct a measure of income uncertainty for each household from the observed household real income and use it to test for the strength of precautionary saving. I find that an increase of 1% in the standard deviation of income reduces household consumption by 8.8% when using the logarithm of the household consumption as dependent variable; however, when using the ratio between consumption and average income as dependent variable, given the average normal income and consumption in the sample, consumption will decrease by 8.1%. [ABSTRACT FROM AUTHOR]

An optimality condition for sustainability actions under discounted expected utility is that, ex post, we should almost surely regret having adjusted them too much for risk. In other words, ex post, one would almost surely feel regret for "excess" precautionary saving, excess insurance and hedging coverage, or for excess risk-bearing. Moreover, for marginal investments whose impacts materialize in t years, t tending to infinity, their state-contingent present value tends to zero almost surely, in spite of the fact that their expected value is one. The value of sustainable actions is thus mostly derived from very improbable extreme scenarios. [ABSTRACT FROM AUTHOR]

The purpose of this article is to compare the focus of researchers and the saving behavior of households in different types of crises within the scope of the financial crisis of 2008 and the pandemic crisis. The research focused on the literature review of publications in the WoS bibliographic database concentrated on saving and personal finance with the addition of a crisis or pandemic. 276 publications in the WoS category of Economics were identified. Full and fractional clustering with VOS Viewer was applied. It has been found that there are differences in the behavior of households and in the focus of researchers concerning analyzed terms between the pandemic and other crises. In the case of the financial crisis of 2008, a broader approach prevailed, considering the situation of the financial market and its liquidity, but also inequalities and imbalances at the individual, national and international levels. When it comes to the pandemic, the term savings had the most associations with problems related to the situation of an individual household. Attention was paid to financial security, income, wealth, and demand generated by the household.

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I study unemployment insurance (UI) in general equilibrium with incomplete markets, search frictions, and nominal rigidities. An increase in generosity raises the aggregate demand for consumption if the unemployed have a higher marginal propensity to consume than the employed or if agents precautionary save in light of future income risk. This raises output and employment unless monetary policy raises the nominal interest rate. In an analysis of the U.S. economy over 2008–2014, UI benefit extensions had a contemporaneous output multiplier around 1. The unemployment rate would have been as much as 0.4 pp higher absent these extensions. [ABSTRACT FROM AUTHOR]

Copyright of NTU Management Review is the property of NTU Management Review and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Most of the canonical macroeconomic models simulate liquidity anomalies by changing the economic fundamentals or adding massive financial shock to firms' collateral constraints, but a few facts somehow tell a different story. Instead of relying on the exogenous shocks, we introduce uncertainty into an otherwise classical liquidity framework and try to answer what worsens the aggregate liquidity in the absence of exogenous simulations and what a firm dynamics and financing strategy would be. Our analysis shows that (1) uncertainty induces agents to make decisions under the worst-case scenario and hence generates a unique expectation threshold that drags market (or firms) liquidity from sufficiency to insufficiency even without any shock or economic changes. (2) Precautionary saving occurs before the real liquidity shortage as the expectation shifts, causing firms to secure external financing by raising the equity issuing price and hoarding liquid assets, such as fiat money, against liquidity tightening. (3) To achieve liquidity stability and sustainability, an extra mathematical constraint is supplemented for the uniqueness and the existence of equilibrium under uncertainty. Other properties of firms' intertemporal allocations, such as the bid-ask spread and return of holding of the illiquid asset, are derived. Moreover, some approaches for further empirical research are discussed. [ABSTRACT FROM AUTHOR]

Income shocks due to environmental variability, climatic events or overexploitation can result in severe hardships for natural resource users which are unable to smooth consumption. Artisanal fishers in Chile vary in their ability to smooth consumption due to regulatory differences. Utilizing these regulatory differences, we find that survey participants that harvest species which are governed by restrictive quotas have preferences for more precautionary savings compared to survey participants whose harvest is not restricted. The inability to adjust harvest increases the importance of self-insurance through saving. Especially in developing countries, where formal saving opportunities are limited, policies that aim at stabilizing resource productivity through restrictive quotas need to account for available consumption smoothing strategies to avoid unintended welfare losses. [ABSTRACT FROM AUTHOR]

Economic uncertainty will result in consumers' unstable environment expectations, thus affecting household consumption decisions. The paper established a consumption model though using the cointegration theory and ECM model, and used the annual data from 2002 to 2021 to examine the influence of uncertain expectations on the consumption behavior of rural residents in China. The research results show that consumers' income, consumption, consumption habits liquidity constraints and precautionary savings jointly produce the feelings of uncertainty, which will lead to rural consumers' uncertain expectations. Uncertain expectations will not only lead to rural residents the prudent consumption behavior of residents, but also lead to the lack of confidence of residents, forming phased consumption characteristics. Combining the results of the empirical analysis, this paper gives suggestions to promote rural consumption from the perspective of increasing rural residents' income, reforming the income distribution system, improving the rural financial system, and reinforcing the construction of rural consumption infrastructure. [ABSTRACT FROM AUTHOR]

The countercyclical pattern of saving in Thailand in the 1990s and 2000s raised questions about household saving behaviors in the country. Using constructed pseudo-panel data sets from the Thai Household Socioeconomic Surveys (SESs) from 1992 to 2011, this paper estimates the intensity of the precautionary saving motive, measured by the coefficient of relative prudence of households in Thailand. By using a dynamic pseudo-panel approach to address concerns with regard to individual heterogeneity causing bias in estimation, the estimated relative prudence of Thai households is around 2, which shows a low precautionary saving motive among these households compared to other countries. Estimates based on disaggregation by demographic characteristics show that as a result of the government-assistance policy, older cohorts and those who live in the rural areas show lower prudence. [ABSTRACT FROM AUTHOR]

This paper contributes to the theory of optimal international reserves by extending the Jeanne-Rancière (Econ J 121:905-930, 2011) endowment small open economy (SOE) model to a SOE with production that accounts for the main sources of economic growth. We, first, derive a richer analytical version of the optimal reserves formula in our set-up, essentially driven by labour-augmenting productivity and the saving rate. Then, under a plausible calibration based on 1975-2020 data averages for typical emerging market countries facing the risk of sudden stops in capital inflows, we find that the optimal reserves-to-output ratio is 7.5%, i.e., the mid-point in the range between that in Jeanne and Rancière (Econ J 121:905-930, 2011), of 9.1%, calibrated to the same sample of 34 middle-income countries, and that in Bianchi et al. (Am Econ Rev 108(9):2629-2670, 2018), of 6.0%, obtained in a different, sovereign debt model without capital and production. We explain the lower optimal reserves-to-output ratio relative to the endowment SOE by the role of capital accumulation as precautionary saving: the accumulated capital stock can potentially be used as a pledge to external creditors in obtaining borrowing, thereby insuring better a SOE against sudden stops. As the countries in our sample appear quite heterogeneous, we also compute the optimal reserves-to-output ratio by region. It turns out that our extended to production insurance SOE model matches well the average reserves-to-output ratio in the data for Latin America, represented by nearly half of our sample, 16 countries, at just above 10%. Yet, for Asia, Africa and Europe our regional model-based ratios understate considerably the respective data averages, suggesting the need to explore alternative modelling approaches. [ABSTRACT FROM AUTHOR]

Climate change is widespread, rapid, and is intensifying. Using Chinese disaster data and the China Family Panel Studies (CFPS) data, this study examines the impact of climate shocks on the vulnerability of farm households to poverty and the mechanism of household resource allocation in this process. The results show that (a) climate shocks can significantly increase the poverty vulnerability of farm households. (b) The effect of climate shocks on farm household poverty vulnerability is regionally and individually heterogeneous. Climate non-security zones, risk-averse farmers, and low social capital farmers are more vulnerable to climate shocks and fall into poverty. (c) The mediating effects suggest that climate shocks affect the poverty vulnerability of farm households by influencing their developmental investment, productive investment, and precautionary saving. The paper finally concludes and discusses some policy implications in the national response to climate change and transformation of farmers' livelihoods. [ABSTRACT FROM AUTHOR]

The use of multiple risk management tools at the same time is a common practice among the farming communities around the world. Therefore, this study is designed to investigate the Factor affecting of Simultaneous adoption of managing custom catastrophic risks tools such as diversification and precautionary savings in agriculture in Khorram Abad Area of Tonekabon. So bivariate probit model was used to cope the possible correlation between the risk management adoption decisions. The results highlighted that, age, education of the household head, family size, in farm income, land size and risk aversion coefficient has the significant effect on the decisions to adopt diversification and precautionary savings to manage farm risks. Risk aversion coefficient has the most effects on decisions to adopt managing catastrophic risks tools; Increasing in risk aversion coefficient, was increased the probability of simultaneously use of risks management tools by 0.22 percentage. Therefore, due to the positive impact of education and income on the use of risk management tools, increasing farmers 'awareness and increasing farmers' income through modifying their cropping pattern has been suggested. [ABSTRACT FROM AUTHOR]

We study precautionary saving in a two-period model that allows for nonlinear risks and nonseparable preferences. Permitting nonlinear risk effects is important because they are common in the developing world or when worldwide shocks hit economies, like the COVID-19 pandemic. Allowing nonseparable preferences is also important because they admit the incorporation of intergenerational transfer, habit persistence and other specific features of intertemporal decision making. We decompose the risk shock using Davis's (Int Econ Rev 30(1):131–136, 1989) compensation method and analyze the income and substitution effect of an increase in risk. We prove that the substitution effect is always negative and, therefore, the income effect must be positive and larger in size to have a precautionary net effect. We then apply the method to various sources of risk, such as income, interest rate and wealth risk. We analyze the magnitude of each effect and find the conditions required to guarantee precautionary saving in each case. Our results are presented as signs of covariances, which provides a new perspective on precautionary saving. [ABSTRACT FROM AUTHOR]

In this paper, optimal saving models with two risk components are studied: the labor income risk and the interest rate risk. These risks can be modeled probabilistically by random variables or possibilistically by fuzzy numbers. In mixed models, one of the components is probabilistic and the other one is possibilistic. After the construction of two mixed models of optimal saving, several notions of precautionary saving are defined. These measure the variation in optimal saving level when moving from one model to another (usually by adding a risk component). The main results of the paper establish necessary and sufficient conditions on the positivity of different precautionary savings. (This means that the presence of new risks generates extra-saving.) [ABSTRACT FROM AUTHOR]

Using a new survey of Italian households, we study the effect of fear of COVID‐19 contagion and income risk on consumption. The survey elicits individual‐level indicators of fear of contagion, distinguishing between worries while working, shopping, traveling, eating out and meeting relatives or friends. We find that the probabilities of consumption drops and increased saving after the pandemics are positively associated to fear of contagion, particularly while shopping. Income uncertainty also contributes to savings increase and consumption drop. Our findings suggest that fear of contagion and income risk limits the effectiveness of policies aimed at stimulating consumption during the pandemic. [ABSTRACT FROM AUTHOR]

In the past years, work-time in many industries has become more flexible, opening up a new channel for intertemporal substitution: workers might, instead of saving, adjust their work-time to smooth consumption. To study this channel, we set up a two-period consumption/saving model with wage uncertainty. This extends the standard saving model by also allowing a worker to allocate a fixed time budget between two work-shifts. To test the comparative statics implied by these two different channels, we conduct a laboratory experiment. A novel feature of our experiments is that we tie income to a real-effort style task. In four treatments, we turn on and off the two channels for consumption smoothing: saving and time allocation. Our main finding is that savings are strictly positive for at least 85 percent of subjects. We find that a majority of subjects also uses time allocation to smooth consumption and use saving and time shifting as substitutes, though not perfect substitutes. Part of the observed heterogeneity of precautionary behavior can be explained by risk preferences and motivations different from expected utility maximization. [ABSTRACT FROM AUTHOR]

We analyze US state government spending behavior with a general intertemporal model allowing for asymmetry in balanced budget rules in a panel data setting. We find no strong evidence for forward-looking behavior in state spending; balanced budget rules are a significant constraint. States with budget rules imposing lighter restrictions are more likely to exhibit habit formation, while those with stricter rules demonstrate asymmetric responses to revenue changes. Evidence for a precautionary savings motive is limited. Balanced budget requirements trigger substantial pro-cyclical spending, possibly amplifying state economic volatility for states with tight fiscal rules, especially after revenue increases. [ABSTRACT FROM AUTHOR]

Climate change is widespread, rapid, and is intensifying. Using Chinese disaster data and the China Family Panel Studies (CFPS) data, this study examines the impact of climate shocks on the vulnerability of farm households to poverty and the mechanism of household resource allocation in this process. The results show that (a) climate shocks can significantly increase the poverty vulnerability of farm households. (b) The effect of climate shocks on farm household poverty vulnerability is regionally and individually heterogeneous. Climate non-security zones, risk-averse farmers, and low social capital farmers are more vulnerable to climate shocks and fall into poverty. (c) The mediating effects suggest that climate shocks affect the poverty vulnerability of farm households by influencing their developmental investment, productive investment, and precautionary saving. The paper finally concludes and discusses some policy implications in the national response to climate change and transformation of farmers’ livelihoods.

The division of household income between consumption and savings is an important economic decision affecting the country’s economy. Today, being dynamic of consumers preference of consumers at choice’s and the changes that may ocur in socio-economic factors significantly affect the consumption and saving decision, creating significant externalities on the country’s economy. The preferences of households between consumption and saving and the factors affecting these behaviors give different results for different income groups. The purpose of the study, Turkey Statistical Institute(TSI)’s made clear in his period 2003-2013 Household Budget Survey(HBS) using the data set is to investigate the household savings tendency in Turkey. Quantil Regression technique was used as an econometric method, the tendency to save for low, middle and high income household was analyzed over different quantile and it was observed that differentnparameter results had different effects for each quantile estimation. According to the econometric analysis results, when variables such as the wealth factor were examined, it was observed that families with higher education who had health insurance were families with no prudential concern and pozitive saving was not seen for those in this group, while families with subsistence level and families with no security fort he future had a positive tendency to saveing prudent purpose. Another remarkable a feature was found in the age variable. Individuals continue to make savings in their old age, either out of precautionary concern nor with the motive of inheritance. [ABSTRACT FROM AUTHOR]

I analyze the marginal value of reducing greenhouse gas emissions (the "social cost of carbon") under uncertainty about warming, under uncertainty about how much warming reduces consumption, and under stochastic shocks to consumption growth. I theoretically demonstrate that each of these sources of uncertainty increases the social cost of carbon under conventional preferences. In a calibrated numerical implementation, uncertainty increases the 200-year social cost of carbon by more than 20%. Uncertainty about the consumption impacts of warming contributes the most to this premium and makes the social cost of carbon sensitive to impacts even after 2400. [ABSTRACT FROM AUTHOR]

As COVID-19 spreads across the globe, a common public policy response has been to enforce the temporary closure of non-essential business activity. In some countries, governments have underwritten a proportion of the wage income for staff forced to furlough or broadened their welfare systems to accommodate newly laid off workers or small business owners. While these actions are helpful, they do not explicitly address the lack of sales trading activity on business income and cash balances. In commentary, we identify what types of businesses have been increasing their cash holdings in the lead up to COVID-19 as an indication of what types of small and medium-sized enterprises (SMEs) are most at risk if the lockdown extends for a protracted period of time. We find that only 39% of the of businesses were bolstering their cash balances leading up to COVID-19 which suggests that 61% of businesses may run out of cash, including 8.6% that had no retained earnings whatsoever with micro firms at particular risk. The importance of precautionary saving for SMEs is critical to enhance resilience when Black Swan events occur. [ABSTRACT FROM AUTHOR]

In this paper, we analyze the wealth accumulation and saving behavior of the retired elderly in Italy using micro data from the "Survey of Italian Households' Income and Wealth," a panel survey of households conducted every 2 years by the Bank of Italy. We find that, on average, the retired elderly in Italy are decumulating their wealth (dissaving) but that their wealth decumulation rates are much slower than expected. Moreover, we also find that more than 40% of the retired elderly in Italy are continuing to accumulate wealth and that more than 80% are doing positive amounts of saving. Thus, the Wealth Decumulation Puzzle (the tendency of the retired elderly to decumulate their wealth more slowly than expected) appears to apply in the case of Italy, as it does in most other countries, before as well as after the Global Financial Crisis. Moreover, our regression analysis of the determinants of the wealth accumulation and saving behavior of the retired elderly in Italy suggests that the lower than expected wealth decumulation rates and dissaving of the retired elderly in Italy is due largely to intergenerational transfers (bequests and inter vivos transfers) and saving for precautionary purposes, especially the former. [ABSTRACT FROM AUTHOR]

Copyright of Economic Science / Jingji Kexue is the property of Economic Science Editorial Office and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This work reviews recent developments in the literature analyzing precautionary saving. After a description of traditional precautionary saving theory, which considers labor income risk and interest rate risk, we present different research lines which introduce a wide range of extensions and generalizations of the classical model: the contemporaneous presence of multiple risks, changes in risks of different types, multiple variables affecting household utility, preferences non-featuring risk aversion and joint decisions on many choice variables. For each of these issues, we provide specific highlights which summarize the main results obtained in the literature. Lastly, we briefly discuss the analyzes beyond the classical model. [ABSTRACT FROM AUTHOR]

The household data underlying the Michigan Index of Consumer Sentiment are used to test the rationality of consumer expectations and their usefulness in forecasting expenditure. The results can be interpreted as characterizing the shocks that hit different types of households over time. Expectations are found to be biased and inefficient, at least ex post. People underestimated the disinflation of the early 1980s and the severity of recent business cycles. People's forecast errors are also systematically correlated with their demographic characteristics, in part because of time-varying, group-level shocks. Further, sentiment helps forecast consumption growth. Some of this rejection of the permanent income hypothesis is due to the systematic demographic components in forecast errors. [ABSTRACT FROM AUTHOR]

The global financial crisis wreaked havoc on the European economy and dented consumer confidence. This paper exploits a panel dataset of 18 EU countries over the period 2001–2014 to examine whether this decrease in consumer confidence affected household saving behaviors and if so, which specific sub-indicators of consumer sentiment played the most significant role. To tackle the issue of potential endogeneity between household saving rates and consumer confidence, we use an instrumental variable approach. Our results suggest that confidence in household financial situations has a substantially larger effect on household saving than confidence in the general economic situation. Moreover, we find that the impact of consumer confidence on household saving has increased after the crisis, potentially due to a threshold effect. [ABSTRACT FROM AUTHOR]

The paper analyzes the lifetime utility maximization problem of an agent who chooses her saving and timing of retirement in the presence of labor income risk in a simple setting where a pure redistributive pension scheme is in place. In this context, a precautionary motive for retirement, which pushes old workers to replace an uncertain labor income with certain pension payments, and to retire early is identified. The conditions for precautionary retirement and saving to arise are then characterized and interpreted in two settings. In the first setting, utility only depends on income, and a sufficiently low level of absolute prudence is necessary for precautionary retirement. A sufficiently high level is necessary however for precautionary saving, which can coexist with precautionary retirement only for intermediate values of absolute prudence. In the second setting, agent utility also depends on leisure, and three conditions allow the precautionary motive for retirement and saving to jointly operate: prudence, an index of absolute prudence sufficiently low and cross-prudence in leisure. [ABSTRACT FROM AUTHOR]

This paper investigates the relationship between household saving and pensions, and estimates both the displacement effect of pensions on private saving and the precautionary saving effect due to uncertainty in pension income. I estimate the savings equation implied by a simple life‐cycle model featuring income uncertainty using survey data for Dutch households, with subjective expectations on pension benefits and uncertainty. Exploiting exogenous variation due to pension fund performance, I find that households save significantly more due to uncertainty in pension income. Not controlling for uncertainty biases the estimated displacement effect of pensions on private savings towards zero. [ABSTRACT FROM AUTHOR]

Modern economic theory summarizes the main characteristics of individual preferences through a definite set of parameters: risk aversion, prudence, and the elasticity of intertemporal substitution. Despite their importance, the results of the literature devoted to the parameters' estimation are controversial. This paper highlights the neglected role that may have been played by the constraints that the quantitative definition of the parameters and the utility functions employed impose on the estimation. A number of simulation exercises are presented, which show that the same saving behaviour can be associated with quite different values of the parameters depending on the utility function adopted. [ABSTRACT FROM AUTHOR]