A Tractable Model of Buffer Stock Saving
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A Direct Test of the Buffer-Stock Model of Saving∗
Recent models with liquidity constraints and impatience emphasize that consumers use savings to buffer income fluctuations. When wealth is below an optimal target, consumers try to increase their buffer stock of wealth by saving more, while, if wealth is above target, they increase consumption. This important implication of the buffer stock model of saving has not been subject to direct empiric...
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