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The American consumer: Reforming, or just resting?

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  • Carroll, Christopher D.
  • Slacalek, Jirka

Abstract

American households have received a triple dose of bad news since the beginning of the current recession: The greatest collapse in asset values since the Great Depression, a sharp tightening in credit availability, and a large increase in unemployment risk. We present measures of the size of these shocks and discuss what a benchmark theory says about their immediate and ultimate consequences. We then provide a forecast based on a simple empirical model that captures the effects of wealth shocks and unemployment fears. Our short-term forecast calls for somewhat weaker spending, and somewhat higher saving rates, than the Consensus survey of macroeconomic forecasters. Over the longer term, our best guess is that the personal saving rate will eventually approach the levels that preceded period of financial liberalization that began in the late 1970s. --

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Bibliographic Info

Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2009/12.

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Date of creation: 2009
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Handle: RePEc:zbw:cfswop:200912

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Keywords: Consumption/Saving Forecast; Credit Crunch; Financial Crisis;

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  1. Christopher D. Carroll & Jiri Slacalek & Martin Sommer, 2008. "International Evidence On Sticky Consumption Growth," Economics Working Paper Archive 542, The Johns Hopkins University,Department of Economics.
  2. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
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