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Precautionary Savings in a Small Open Economy Revisited, Agustin Roitman

A common assumption in standard economic models is that agents are risk-averse and prudent, and it is often argued that prudence is necessary to generate precautionary savings. This paper shows that prudence is not necessary to generate precautionary savings in small open economy models with more than two periods. A new class of preferences, which enables the isolation of the effect of risk aversion on precautionary savings, is introduced. The effects of changes in risk aversion, interest rates, and persistence and volatility of shocks on average asset holdings are qualitatively identical to the ones observed for standard constant-elasticity-of-substitution preferences. These results show that the almost universal assertion in the literature - that only prudent consumers can generate positive levels of precautionary savings - is simply incorrect
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; I. Introduction; II. Invariant Relative Prudence; III. Two-Period Model; A. Results; 1. Two-Period Model Parameterization; 2. Two-Period Model under No Uncertainty; 3. Two-Period Model under Uncertainty; IV. Three-Period Model; A. Results; 4. Two-Period Model Parameterization; 5. Three-Period Model under No Uncertainty; 6. Three-Period Model under Uncertainty; V. Volatility, Intertemporal Distortions, Risk Aversion, and Interest Rates; A. Volatility; 7. Endowments in Periods Two and Three; 8. Mean-Preserving Spread
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (41 p.)
Specific Material Designation
Form Of Item

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