Precautionary Savings and Wealth Distributionunder Habit Formation Preferences

• Antonia Díaz ^[1] ; Josep Pijoan-Mas ^[2] ; José-Víctor Ríos-Rull ^[3]
  1. [1] Universidad Carlos III de Madrid

     Universidad Carlos III de Madrid

     Madrid, España

     
  2. [2] Centro de Estudios Monetarios y Financieros

     Centro de Estudios Monetarios y Financieros

     Madrid, España

     
  3. [3] University of Pennsylvania

     University of Pennsylvania

     City of Philadelphia, Estados Unidos

     

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• Localización: Documentos de Trabajo ( CEMFI ), Nº. 7 (Working Paper No. 0207, September 2002), 2002
• Idioma: inglés
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• Resumen

  • We study the role of habit formation in shaping the amount of precautionary savings and the wealth distribution in heterogeneous agents model economies with idiosyncratic uncertainty. We adjust preferences to equate the Intertemporal Elasticity of Substitution in all model economies. We find that habit formation brings a hefty increase in precautionary savings and very mild reductions in the coefficient of variation and in the Gini index of wealth. These findings hold for both persistent and non persistent habits, with the effectsof the former being much larger.