Unemployment (Fears), Precautionary Savings, and Aggregate Demand

Pontus Rendahl
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Pontus Rendahl: University of Cambridge

No 427, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: This paper analyzes the feedback between firms' hiring decisions and the demand for their products in environments in which agents are not well insulated from the financial consequences of unemployment. In such an environment, an increase in (the chance of ) becoming unemployed increases precautionary savings and reduces aggregate demand, which in turn negatively affects the unemployment rate.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:427

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