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Dissecting Saving Dynamics: Measuring Wealth, Precautionary, and Credit Effects

  • Christopher Carroll
  • Jiri Slacalek
  • Martin Sommer

We argue that the U.S. personal saving rate’s long stability (1960s–1980s), subsequent steady decline (1980s–2007), and recent substantial rise (2008–2011) can be interpreted using a parsimonious 'buffer stock' model of 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 determined by credit conditions and uncertainty. An estimated structural version of the model suggests that increased credit availability accounts for most of the long-term saving decline, while fluctuations in wealth and uncertainty capture the bulk of the business-cycle variation.

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Paper provided by The Johns Hopkins University,Department of Economics in its series Economics Working Paper Archive with number 602.

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Date of creation: Sep 2012
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Handle: RePEc:jhu:papers:602
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