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Precautionary saving and aggregate demand

Author

Listed:
  • Xavier Ragot

    (Paris School of Economics)

  • Julien Matheron

    (Banque de France)

  • Juan Rubio-Ramirez

    (Duke University)

  • Edouard Challe

    (Ecole Polytechnique)

Abstract

We formulate and estimate a tractable macroeconomic model with time-varying precautionary savings. We argue that the latter affect aggregate fluctuations via two main channels: a stabilizing aggregate supply effect working through the supply of capital; and a destabilizing aggregate demand effect generated by a feedback loop between unemployment risk and consumption demand. Using the estimated model to measure the contribution of precautionary savings to the propagation of recent recessions, we find strong aggregate demand effects during the Great Recession and the 1990-1991 recession. In contrast, the supply effect at least offset the demand effect during the 2001 recession

Suggested Citation

  • Xavier Ragot & Julien Matheron & Juan Rubio-Ramirez & Edouard Challe, 2015. "Precautionary saving and aggregate demand," 2015 Meeting Papers 404, Society for Economic Dynamics.
  • Handle: RePEc:red:sed015:404
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    Cited by:

    1. Krueger, D. & Mitman, K. & Perri, F., 2016. "Macroeconomics and Household Heterogeneity," Handbook of Macroeconomics, Elsevier.
    2. Serdar Ozkan & Kurt Mitman & Fatih Karahan & Aaron Hedlund, 2016. "Monetary Policy, Heterogeneity and the Housing Channel," 2016 Meeting Papers 663, Society for Economic Dynamics.
    3. Gianluca Violante & Benjamin Moll & Greg Kaplan, 2015. "Monetary Policy According to HANK," 2015 Meeting Papers 1507, Society for Economic Dynamics.
    4. Fabrizio Perri & Jonathan Heathcote, 2011. "Wealth and Volatility," 2011 Meeting Papers 1065, Society for Economic Dynamics.
    5. Rabitsch, Katrin & Schoder, Christian, 2016. "Buffer stock savings in a New-Keynesian business cycle model," Department of Economics Working Paper Series 5158, WU Vienna University of Economics and Business.
    6. Ravn, Morten O & Sterk, Vincent, 2016. "Macroeconomic Fluctuations with HANK & SAM: An Analytical Approach," CEPR Discussion Papers 11696, C.E.P.R. Discussion Papers.
    7. Nils Gornemann & Keith Kuester & Makoto Nakajima, 2016. "Doves for the Rich, Hawks for the Poor? Distributional Consequences of Monetary Policy," International Finance Discussion Papers 1167, Board of Governors of the Federal Reserve System (U.S.).
    8. repec:eee:moneco:v:88:y:2017:i:c:p:1-14 is not listed on IDEAS
    9. Xavier Ragot, 2016. "Le retour de l’économie keynésienne," Revue d'économie financière, Association d'économie financière, vol. 0(1), pages 173-186.
    10. Andrew Binning & Junior Maih, 2016. "Implementing the Zero Lower Bound in an Estimated Regime-Switching DSGE Model," Working Papers No 3/2016, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    11. Paul Beaudry & Dana Galizia & Franck Portier, 2018. "Reconciling Hayek’s and Keynes’ Views of Recessions," Review of Economic Studies, Oxford University Press, vol. 85(1), pages 119-156.
    12. Bilbiie, Florin Ovidiu & Ragot, Xavier, 2017. "Optimal Monetary Policy and Liquidity with Heterogeneous Households," CEPR Discussion Papers 11814, C.E.P.R. Discussion Papers.
    13. Den Haan, Wouter & Rendahl, Pontus & Riegler, Markus, 2015. "Unemployment (Fears) and Deflationary Spirals," CEPR Discussion Papers 10814, C.E.P.R. Discussion Papers.
    14. Manuel, Lancastre, 2016. "Age Milestones and Low Interest Rates, an Analytic Approach," MPRA Paper 85046, University Library of Munich, Germany.
    15. Midrigan, Virgiliu & Philippon, Thomas, 2011. "Household Leverage and the Recession," CEPR Discussion Papers 8381, C.E.P.R. Discussion Papers.
    16. Den Haan, Wouter J. & Rendahl, Pontus & Riegler, Markus, 2015. "Unemployment (fears) and deflationary spirals," LSE Research Online Documents on Economics 86288, London School of Economics and Political Science, LSE Library.
    17. Andrea Caggese & Ander Pérez Orive, 2015. "The Interaction between Household and Firm Dynamics and the Amplification of Financial Shocks," Working Papers 866, Barcelona Graduate School of Economics.
    18. Matthew Rognlie & Adrien Auclert, 2016. "Inequality and Aggregate Demand," 2016 Meeting Papers 1353, Society for Economic Dynamics.
    19. Acharya, Sushant & Dogra, Keshav, 2018. "Understanding HANK: insights from a PRANK," Staff Reports 835, Federal Reserve Bank of New York, revised 01 Aug 2018.
    20. George-Marios Angeletos, 2017. "Frictional Coordination," NBER Working Papers 24178, National Bureau of Economic Research, Inc.
    21. Lancastre, Manuel, 2016. "Inequality and Real Interest Rates," MPRA Paper 85047, University Library of Munich, Germany.
    22. Xavier Ragot & Francois Le Grand, 2017. "Optimal Fiscal Policy with Heterogeneous Agents and Aggregate Shocks," 2017 Meeting Papers 969, Society for Economic Dynamics.
    23. Galo Nuño & Carlos Thomas, 2016. "Optimal monetary policy with heterogeneous agents," Working Papers 1624, Banco de España;Working Papers Homepage.
    24. repec:bfr:rueban:2018:61 is not listed on IDEAS
    25. Bilbiie, Florin Ovidiu, 2017. "The New Keynesian Cross: Understanding Monetary Policy with Hand-to-Mouth Households," CEPR Discussion Papers 11989, C.E.P.R. Discussion Papers.

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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