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Inference on Buffer‐Stock Saving

Hao Dong & Yuya Sasaki

Journal of Applied Econometrics2026https://doi.org/10.1002/jae.70048article
AJG 3ABDC A*
Weight
0.50

Abstract

There is an ongoing debate about the buffer‐stock saving hypothesis. This paper develops a formal test of the hypothesis by examining the sub‐unity of the marginal propensity to consume out of permanent income (MPCP). Our test relies on a novel estimator of the average derivative of a nonparametric consumption model, using constructed measures of latent permanent income shocks that accommodate nonparametric income distributions. Following Li and Vuong (1998), we use a Kotlarski‐based approach to account for asymmetric errors, which is crucial for testing buffer‐stock behavior. Applied to the US Panel Study of Income Dynamics (PSID) data, our test rejects a unit MPCP, providing empirical support for buffer‐stock saving.

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https://doi.org/https://doi.org/10.1002/jae.70048

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@article{hao2026,
  title        = {{Inference on Buffer‐Stock Saving}},
  author       = {Hao Dong & Yuya Sasaki},
  journal      = {Journal of Applied Econometrics},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1002/jae.70048},
}

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Inference on Buffer‐Stock Saving

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Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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