Precautionary Saving over the Business Cycle

Xavier Ragot and Edouard Challe

No 517, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: In this paper, we present a tractable model of time-varying precautionary saving behaviour due to changes in uninsured unemployment risk. In our model, agents facing incomplete markets and borrowing constraints respond to changes in labour market conditions by altering their buffer stock of precautionary wealth, with a direct impact on current consumption. The model is calibrated to match the evidence on the share of permanent income consumers and the distribution of wealth in the U.S. economy. We find a large, but relatively short-lived, impact of the precautionary motive on aggregate consumption in response to a typical labour market shock. The implications of the precautionary motive for consumption Euler equation tests are also discussed.

Date: 2011
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Precautionary Saving Over the Business Cycle (2016)
Working Paper: Precautionary Saving Over the Business Cycle (2016)
Working Paper: Precautionary Saving Over the Business Cycle (2016)
Working Paper: Precautionary Saving Over the Business Cycle (2016)
Working Paper: Precautionary Saving over the Business Cycle (2013)
Working Paper: Precautionary Saving over the Business Cycle (2013)
Working Paper: Precautionary Saving over the Business Cycle (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed011:517

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