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Many Too Many: excess savings and the transmission of macroeconomic shocks

Author

Listed:
  • Andrea Foschi

    (Bank of Italy)

  • Stefano Pica

    (Bank of Italy)

  • Marianna Riggi

    (Bank of Italy)

Abstract

We show that the stock of excess savings alters the propagation of the business cycle. It markedly weakens the transmission of monetary policy shocks to real economic activity and inflation; in contrast, in the event of a cost-push disturbance, excess savings cushion the impact on output while amplifying and prolonging the pass-through to inflation. These findings underscore the importance of incorporating balance-sheet conditions into the assessment and calibration of monetary policy. They also offer additional insights into the 2022-23 cyclical episode in the euro area: in an environment characterized by historically elevated excess savings, the surge in energy prices and the unprecedented pace of policy rate hikes resulted in resilient growth and stubbornly persistent high inflation.

Suggested Citation

  • Andrea Foschi & Stefano Pica & Marianna Riggi, 2026. "Many Too Many: excess savings and the transmission of macroeconomic shocks," Questioni di Economia e Finanza (Occasional Papers) 1031, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_1031_26
    as

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    References listed on IDEAS

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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