Consumption Smoothing Among Working-Class American Families Before Social Insurance

39 Pages Posted: 8 Sep 1999

See all articles by Michael Palumbo

Michael Palumbo

Board of Governors of the Federal Reserve System

John A. James

University of Virginia (UVA) (deceased)

Mark Thomas

University of Virginia

Multiple version iconThere are 2 versions of this paper

Date Written: April 23, 1999

Abstract

This paper examines whether the saving decisions of a large sample of working-class American families around the turn of the twentieth century are consistent with consumption smoothing tendencies in the spirit of the permanent income hypothesis. We develop two econometric models to decompose reported annual incomes from micro-data into expected and unexpected components, then we estimate marginal propensities to save out of each component of income. The two methodologies deliver similar regression estimates and reveal empirical patterns consistent with those reported in other recent research based on quite different contemporary household data. Marginal propensities to save out of unexpected income shocks are large relative to propensities based on expected income movements, though the former lie much below one and the latter much above zero. While these data reject strict parameterizations of the permanent income hypothesis, we nonetheless conclude that families' saving decisions in the historical period look quite "modern."

JEL Classification: D91, N31, E21

Suggested Citation

Palumbo, Michael G. and James, John A. and Thomas, Mark, Consumption Smoothing Among Working-Class American Families Before Social Insurance (April 23, 1999). FEDS Working Paper No. 99-24, Available at SSRN: https://ssrn.com/abstract=171828 or http://dx.doi.org/10.2139/ssrn.171828

Michael G. Palumbo (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2296 (Phone)

John A. James

University of Virginia (UVA) (deceased)

Mark Thomas

University of Virginia

1400 University Ave
Charlottesville, VA 22903
United States

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