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Dissecting saving dynamics: measuring wealth, precautionary and credit effects

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  • Carroll, Christopher
  • Slacalek, Jiri
  • Sommer, Martin

Abstract

We argue that the U.S. personal saving rate's long stability (from the 1960s through the early 1980s), subsequent steady decline (1980s-2007), and recent substantial increase (2008-2011) can all be interpreted using a parsimonious `buffer stock' model of optimal consumption in the presence of labor income uncertainty and credit constraints. Saving in the model is affected by the gap between `target' and actual wealth, with the target wealth determined by credit conditions and uncertainty. An estimated structural version of the model suggests that increased credit availability accounts for most of the saving rate's long-term decline, while fluctuations in net wealth and uncertainty capture the bulk of the business-cycle variation. JEL Classification: E21, E32

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1474.

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Date of creation: Sep 2012
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Handle: RePEc:ecb:ecbwps:20121474

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Keywords: Consumption; credit availability; saving; uncertainty; wealth;

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Cited by:
  1. Daniel Garrote & Jimena Llopis & Javier Vallés, 2013. "Los canales del desapalancamiento del sector privado: una comparación internacional," Banco de Espa�a Occasional Papers 1302, Banco de Espa�a.
  2. Burgess, Stephen & Fernandez-Corugedo, Emilio & Groth, Charlotta & Harrison, Richard & Monti, Francesca & Theodoridis, Konstantinos & Waldron, Matt, 2013. "The Bank of England's forecasting platform: COMPASS, MAPS, EASE and the suite of models," Bank of England working papers 471, Bank of England.
  3. Alan, S. & Crossley, T. & Low, H., 2012. "Saving on a Rainy Day, Borrowing for a Rainy Day," Cambridge Working Papers in Economics 1222, Faculty of Economics, University of Cambridge.
  4. Christopher D. Carroll, 2012. "Representing Consumption and Saving Without A Representative Consumer," NBER Chapters, in: Measuring Economic Sustainability and Progress National Bureau of Economic Research, Inc.
  5. Daniel Cooper & Karen Dynan, 2013. "Wealth shocks and macroeconomic dynamics," Public Policy Discussion Paper 13-4, Federal Reserve Bank of Boston.

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