The Effects of Consumption Variability on Saving: Evidence from a Panel of Muscovite Households

Due to the high uncertainty characterizing them, transition economies provide an extraordinary opportunity to test the precautionary saving hypothesis. This paper represents an attempt to exploit this opportunity. We use a panel of 2,346 Muscovite households, over the 12 months of 1996, to construct two time-varying measures of consumption growth variability, which we use as proxies for households’ perceived uncertainty. We then regress household saving on these uncertainty variables using a GMM-system estimator. We find that both uncertainty measures generally have a positive and statistically significant effect on saving. This result, which is robust to the use of different measures of saving, supports the precautionary saving hypothesis