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Incomplete markets, labor supply and capital accumulation

  • Albert Marcet
  • Francesc Obiols-Homs
  • Philippe Weil

In this paper we explore the accumulation of capital in the presence of limited insurance against idiosyncratic shocks, borrowing constraints and endogenous labor supply. As in the exogenous labor supply case (e.g. Aiyagari 1994, Huggett 1997), we find that steady states are characterized with an interest rate smaller than the rate of time preference. However,wealsofind that when labor supply is endogenous the presence of uncertainty and a borrowing limit are not enough to give rise to “aggregate precautionary savings”.

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File URL: http://www.econ.upf.edu/docs/papers/downloads/659.pdf
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 659.

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Date of creation: Oct 2002
Date of revision: Oct 2003
Handle: RePEc:upf:upfgen:659
Contact details of provider: Web page: http://www.econ.upf.edu/

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  4. Mark Huggett & Sandra Ospina, 1998. "On Aggregate Precautionary Saving: When is the Third Derivative Irrelevant?," Working Papers 9802, Centro de Investigacion Economica, ITAM.
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  8. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-48, September.
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  11. Jess Benhabib & Richard Rogerson & Randall Wright, 1991. "Homework in macroeconomics: household production and aggregate fluctuations," Staff Report 135, Federal Reserve Bank of Minneapolis.
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  21. Hopenhayn, Hugo A & Prescott, Edward C, 1992. "Stochastic Monotonicity and Stationary Distributions for Dynamic Economies," Econometrica, Econometric Society, vol. 60(6), pages 1387-406, November.
  22. Huggett, Mark & Ospina, Sandra, 2001. "Aggregate precautionary savings: when is the third derivative irrelevant?," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 373-396, October.
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  24. Gary Chamberlain & Charles A. Wilson, 2000. "Optimal Intertemporal Consumption Under Uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(3), pages 365-395, July.
  25. Christopher D Carroll & Karen E Dynan & Spencer D Krane, 1999. "Unemployment Risk and Precautionary Wealth: Evidence from Households' Balance Sheets," Economics Working Paper Archive 416, The Johns Hopkins University,Department of Economics.
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  27. Finn E. Kydland, 1993. "Business cycles and aggregate labor-market fluctuations," Working Paper 9312, Federal Reserve Bank of Cleveland.
  28. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
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  30. Huggett, Mark, 1997. "The one-sector growth model with idiosyncratic shocks: Steady states and dynamics," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 385-403, August.
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