A Direct Test of the Buffer-Stock Model of Saving

In short, the literature still lacks a convincing test of the buffer-stock model. In this paper we use a survey question on precautionary wealth available in the 2002 Bank of Italy Survey on Household Income and Wealth (SHIW) to propose a direct test of buffer stock behavior. The question asks people how much savings they think they need for future emergencies, and is similar to a question contained in the 1995 and 1998 Surveys of Consumer Finances described in Kennickell and Lusardi (2004). We interpret this question as providing information on target wealth in a buffer-stock model, and test the proposition that people with wealth-income ratio below target...
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A Direct Test of the Buffer-Stock Model of Saving