THESIS
2015
Abstract
In this exercise, we quantify the role of precautionary saving motive in explaining urban Chinese household saving rate phenomena. Using a framework in the style of Aiyagari (1994), we show that, because of the uninsured idiosyncratic earning risk, households with higher income saves more, and thus drives up the aggregate household saving rate. Quantitatively, the estimated earning risk alone accounts for almost all of the aggregate urban household saving rate as of the year 2011. The transitional dynamics implied by the model suggests that the increase in income inequality, induced by an egalitarian to an efficiency based reform, could potentially be a major driving force behind the rising household saving rate in China for the last three decades. Our result remain invariant in the cont...[
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In this exercise, we quantify the role of precautionary saving motive in explaining urban Chinese household saving rate phenomena. Using a framework in the style of Aiyagari (1994), we show that, because of the uninsured idiosyncratic earning risk, households with higher income saves more, and thus drives up the aggregate household saving rate. Quantitatively, the estimated earning risk alone accounts for almost all of the aggregate urban household saving rate as of the year 2011. The transitional dynamics implied by the model suggests that the increase in income inequality, induced by an egalitarian to an efficiency based reform, could potentially be a major driving force behind the rising household saving rate in China for the last three decades. Our result remain invariant in the context of financial development and income growth.
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