Monetary and Economic Studies Vol.21, No.3 / October 2003

Precautionary Motives versus Waiting Options: Evidence from Aggregate Household Saving in Japan

Makoto Saito, Shigenori Shiratsuka

Exploiting theoretical implications for saving motives under uncertainty proposed by Epstein (1980), this paper empirically examines which motive is more dominant in aggregate household savings in Japan, precautionary savings or savings as waiting options. The former motive is driven by the magnitude of risks, while the latter is promoted by the subsequent resolution of uncertainty. Empirical results indicate that saving behavior since the 1980s is more consistent with precautionary savings; however, estimation results from the behavior during the 1990s offer some evidence in favor of savings as waiting options.

Keywords: Precautionary savings; Waiting options; Flexibility; Risks; Resolution of uncertainty

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

Copyright © 2003 Bank of Japan All Rights Reserved.

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