Aggregate Savings When Individual Income Varies
AbstractThis paper examines aggregate savings in a general equilibrium model where infinitely lived households face volatile (and possibly uncertain) income paths, hold a risk-free asset, and face a borrowing constraint. I first show that the equilibrium capital stock in an economy without uncertainty, but where individual income varies, can be larger than in an economy where each household's income is constant. When individual income is stochastic and uninsurable, the equilibrium capital stock is always larger than when income is constant. This additional capital accumulation has sometimes been interpreted as precautionary savings, but I argue that much of the additional savings are generated by permanent-income motives in combination with strict borrowing constraints. (Copyright: Elsevier)
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Volume (Year): 11 (2008)
Issue (Month): 1 (January)
Contact details of provider:
Postal: Review of Economic Dynamics Academic Press Editorial Office 525 "B" Street, Suite 1900 San Diego, CA 92101
Web page: http://www.EconomicDynamics.org/review.htm
More information through EDIRC
Other versions of this item:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D90 - Microeconomics - - Intertemporal Choice - - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gary Chamberlain & Charles A. Wilson, 2000.
"Optimal Intertemporal Consumption Under Uncertainty,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 3(3), pages 365-395, July.
- Kjetil Storesletten & Chris Telmer & Amir Yaron, 1997.
"Consumption and risk sharing over the life cycle,"
GSIA Working Papers
228, Carnegie Mellon University, Tepper School of Business.
- Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2000. "Consumption and Risk Sharing Over the Life Cycle," NBER Working Papers 7995, National Bureau of Economic Research, Inc.
- Storesletten, Kjetil & Telmer, Chris & Yaron, Amir, 2002. "Consumption and Risk Sharing Over the Life Cycle," Seminar Papers 702, Stockholm University, Institute for International Economic Studies.
- Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, .
"Precautionary Saving and Social Insurance,"
Rodney L. White Center for Financial Research Working Papers
3-95, Wharton School Rodney L. White Center for Financial Research.
- Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers 03-95, Wharton School Rodney L. White Center for Financial Research.
- R. Glenn Hubbard & Jonathan Skinner & Stephen P. Zeldes, 1995. "Precautionary Saving and Social Insurance," NBER Working Papers 4884, National Bureau of Economic Research, Inc.
- S. Rao Aiyagari, 1993.
"Uninsured idiosyncratic risk and aggregate saving,"
502, Federal Reserve Bank of Minneapolis.
- Flodén, Martin, 2008.
"A note on the accuracy of Markov-chain approximations to highly persistent AR(1) processes,"
Elsevier, vol. 99(3), pages 516-520, June.
- Floden, Martin, 2007. "A Note on the Accuracy of Markov-Chain Approximations to Highly Persistent AR(1)-Processes," Working Paper Series in Economics and Finance 656, Stockholm School of Economics.
- Huggett, Mark & Ospina, Sandra, 2001. "Aggregate precautionary savings: when is the third derivative irrelevant?," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 373-396, October.
- Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Wiley Blackwell, vol. 37(3), pages 353-60, July.
- Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
- Miles S. Kimball, 1989.
"Precautionary Saving in the Small and in the Large,"
NBER Working Papers
2848, National Bureau of Economic Research, Inc.
- Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
- Bianca De Paoli & Pawel Zabczyk, 2012.
"Cyclical Risk Aversion, Precautionary Saving and Monetary Policy,"
CEP Discussion Papers
dp1132, Centre for Economic Performance, LSE.
- Bianca De Paoli & Pawel Zabczyk, 2013. "Cyclical Risk Aversion, Precautionary Saving, and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(1), pages 1-36, 02.
- De Paoli, Bianca & Zabczyk, Pawel, 2011. "Cyclical risk aversion, precautionary saving and monetary policy," Bank of England working papers 418, Bank of England.
- Feigenbaum, James, 2011. "Precautionary saving or denied dissaving," Economic Modelling, Elsevier, vol. 28(4), pages 1559-1572, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.