Saving behaviour of British households -Phd thesis-
Using the data from the British Household Panel Survey (BHPS), this thesis studies British households’ saving behaviour taking into account the concept of inconsistent time preference. The concept of inconsistent time preference suggest that households’ time preferences are hyperbolic, and such households appear averse to saving for the short term and favour saving for the long term.
This thesis is set out based on two theoretical models: one is the buffer-stock model and the other is the quasi-hyperbolic life-cycle consumption model. The buffer-stock model under a life-cycle/permanent income hypothesis posits that households make precautionary savings to buffer income uncertainty in the next period, and this is known as precautionary saving behaviour. Based on the same theoretical specifications, the quasi-hyperbolic life-cycle consumption model distinguishes itself from the previous model by assuming that households’ time preferences are qualitatively hyperbolic. As a consequence, one theoretical anomaly emerges: precautionary saving effect may be found missing for a household with a hyperbolic discount function. Econometric estimation methods are employed to carry out three empirical studies to examine the determinants of households’ short-term saving behaviour and long-term saving behaviour respectively. In the empirical framework, the anomaly mentioned previously is investigated. Moreover, the theoretical implications of the quasi-hyperbolic consumption model are examined.
In general, the empirical findings of this study suggest that British households’ saving behaviour can be explained by the quasi-hyperbolic consumption model. First of all, the precautionary saving effect is found to be missing. Secondly, those households who possess illiquid wealth tend to save less for unexpected events in the short term and prefer to save for the long term, and this is consistent with the pattern that hyperbolic households would exhibit. Thirdly, households’ long-term savings-age profiles over the life cycle exhibit life-cycle effects, whereas their short-term savings profiles remain constant throughout the young and middle age groups.
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