Abstract
In this thesis, we investigate the pattern of wealth accumulation attributable to precautionary motive. Due to lack of household panel data, we apply cohort technique for Taiwan pseudo-panel data over the past twenty years. To correct for sample-selection bias in wealth, we perform Heckman’s two-stage estimation procedure to derive appropriate measures of household wealth. Following Carroll and Samwick (1997), this thesis decomposes cohort-specific income uncertainty into permanent and transitory components, and then evaluates influences of precautionary saving on Taiwan households’ wealth. Our empirical results indicate that households who face greater transitory shock to income would accumulate more financial and housing wealth, while permanent shock induces only accumulation in housing wealth. Furthermore, we also find that precautionary motive for liquid asset is relatively stronger than illiquid asset.