A Paradox of Thrift in General Equilibrium Without Forward Markets

Christophe Chamley ()
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Christophe Chamley: PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, BU - Boston University [Boston]

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Abstract: After 2008, the US personal saving rate had its strongest postwar jump, from 2% to 5%, and the investment ratio its sharpest fall from its postwar average of 16% to its lowest level of 12%. The coordination of saving and investment is analyzed here in a theoretical model of general equilibrium with rational expectations and no forward market. Shocks affect preferences for future consumption. A paradox of thrift is proven that formalizes an argument in the General Theory of Keynes but the equilibrium is a constrained Pareto optimum. Textbook fiscal policies are neutral at best, or inefficient.

Keywords: Paradox of thrift; coordination; incomplete markets; neutral fiscal policy (search for similar items in EconPapers)
Date: 2012-12
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Citations: View citations in EconPapers (6)

Published in Journal of the European Economic Association, 2012, 10 (6), pp.1015-1035. ⟨10.1111/j.1542-4774.2012.01097.x⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00754571

DOI: 10.1111/j.1542-4774.2012.01097.x

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