IDEAS home Printed from https://ideas.repec.org/p/cie/wpaper/9802.html
   My bibliography  Save this paper

On Aggregate Precautionary Saving: When is the Third Derivative Irrelevant?

Author

Listed:
  • Mark Huggett

    (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

  • Sandra Ospina

    (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

Abstract

When does idiosyncratic earnings uncertainty increase aggregate saving? We address this question in the context of a general equilibrium model where infinitely-lived agents receive idiosyncratic labor endowment shocks, hold a risk-free asset to smooth consumption and face a liquidity constraint. We prove that the steady-state capital stock is always larger in any equilibrium with idiosyncratic shocks and a liquidity constraint than without idiosyncratic shocks (i.e. there is aggregate precautionary saving) as long as utility functions are strictly concave. We also prove that aggregate precautionary saving occurs if and only if the liquidity constraint binds for some agents.

Suggested Citation

  • Mark Huggett & Sandra Ospina, 1998. "On Aggregate Precautionary Saving: When is the Third Derivative Irrelevant?," Working Papers 9802, Centro de Investigacion Economica, ITAM.
    • Handle: RePEc:cie:wpaper:9802
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marcet, Albert & Obiols-Homs, Francesc & Weil, Philippe, 2007. "Incomplete markets, labor supply and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2621-2635, November.
    2. repec:hal:spmain:info:hdl:2441/8623 is not listed on IDEAS
    3. repec:hal:spmain:info:hdl:2441/8713 is not listed on IDEAS
    4. Francesc Obiols-Homs, 2003. "Incomplete Unemployment Insurance and Aggregate Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 602-636, July.

    More about this item

    Keywords

    Precautionary Saving; Idiosyncratic Shocks; Liquidity Constraints; Capital Theory;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cie:wpaper:9802. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Diego Dominguez (email available below). General contact details of provider: https://edirc.repec.org/data/ciitamx.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.