|Household Saving: Micro Theories and Micro Facts
|Year of Publication
|Browning, M, Lusardi, A
|Journal of Economic Literature
|Consumption and Savings, Methodology
In this article the main goal is to uncover what causes households to save currency in any form, liquid or not. The authors begin with the eight postulates on saving of John Maynard Keyenes and add a ninth reason to accumulate deposits to buy houses, cars, and other durables. From this they try to link facts about household saving with the microeconomic theories regarding household saving. Their over-arching assumption is that rational forward looking people will not want expenditure or the marginal utility of their expenditure to be greater at one time than at any other time. Various microeconomic saving theories are discussed and the authors make arguments toward what is realistic in the models and where the models deviate from the real world, as well as, how the models differ from one another. Statistical information from the HRS, AHEAD, RHS studies are used as facts that are explained by, or linked to, concepts of the various models. This data thus explains who saves, but not why. The theories described at the beginning of the paper and the statistical information presented are then used in a sort of case study on the declining savings rate over the two decades of the 1970s and 1980s. The conclusion is that the Standard Model of saving is the most flexible and helpful in understanding saving and consumption. The Certainty-Equivalence Model is very strong, but leaves out the important postulate of saving in order to have enough resources in the case of an unforeseen economic downturn or shock. It is the author s belief that the only alternatives to the standard model are behavioral models, but behavioral models may be harder to test. Attempting to link standard model predictions with behavioral models may enable economists to learn more about cross-section variation among ages with regard to savings.