Precautionary Saving and the Marginal Propensity to Consume / Miles S. Kimball.

Format:

Book

Author/Creator:

Kimball, Miles S.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w3403.

NBER working paper series no. w3403

Language:

English

Subjects (All):

Portfolio management--Mathematical models.

Portfolio management.

Risk--Mathematical models.

Risk.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1990.

Cambridge, Massachusetts : National Bureau of Economic Research, 1990.

Summary:

The marginal propensity to consume out of wealth is important for evaluating the effects of taxation on consumption, assessing the possibility of multiple equilibria due to aggregate demand spillovers, and explaining observed variations in consumption. It is also a component of the interest elasticity of consumption and the risk aversion of the value function which gives the expected present value of utility as a function of wealth. This paper analyzes the effect of uncertainty on the marginal propensity to consume within the context of the Permanent Income Hypothesis. Given plausible conditions on the utility function, income risk is found to raise the marginal propensity to consume out of wealth in a multiperiod model with many risky securities. The marginal investment portfolio for additions to wealth is also characterized.

Notes:

Print version record

July 1990.