Structural modeling of economic choices of heterogeneous agents

Theoretical Foundations of Buffer Stock Saving

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  • Carroll


This paper builds theoretical foundations for rigorous and intuitive understanding of 'buffer stock' saving models, pairing each theoretical result with a quantitative exploration. After describing conditions under which the consumption function converges, the paper shows that 'target' saving behavior, which defines buffer stock saving, arises only under conditions strictly stronger than those that guarantee convergence of the consumption and value functions. It also shows that average consumption growth equals average income growth in a small open economy populated by buffer stock savers. Together, the (provided) numerical tools and (proven) analytical results constitute a comprehensive toolkit for understanding buffer stock models.


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How to Execute this Notebook

Install econ-ark on your computer (Quick Start Guide then follow these instructions:

  1. At a command line, change the working directory to the one where you want to install
    • On MacOS/unix, if you install in the /tmp directory, the installation will disappear after a reboot:
    • cd /tmp
  2. git clone --recursive
  3. cd BufferStockTheory
  4. jupyter notebook Code/Python/BufferStockTheory.ipynb