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

Andrea Foschi (), Stefano Pica () and Marianna Riggi ()
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Andrea Foschi: Bank of Italy
Stefano Pica: Bank of Italy
Marianna Riggi: Bank of Italy

No 1031, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

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.

Keywords: excess savings; monetary policy; energy shocks; macroeconomic transmission (search for similar items in EconPapers)
JEL-codes: E21 E31 E32 E52 (search for similar items in EconPapers)
Date: 2026-07
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_1031_26

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