Precautionary Saving and Aggregate Demand
Edouard Challe (),
Julien Matheron (),
Xavier Ragot () and
Juan F Rubio-Ramirez ()
Working papers from Banque de France
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.
Keywords: Incomplete markets; DSGE model; Bayesian estimation; Great Recession. (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
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Journal Article: Precautionary saving and aggregate demand (2017)
Working Paper: Precautionary saving and aggregate demand (2015)
Working Paper: Precautionary Saving and Aggregate Demand (2014)
Working Paper: Precautionary Saving and Aggregate Demand (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:535
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