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Precautionary Saving Over the Business Cycle

Edouard Challe () and Xavier Ragot ()

Sciences Po publications from Sciences Po

Abstract: We study the macroeconomic implications of time-varying precautionary savings within a general equilibrium model with borrowing constraints, aggregate shocks and uninsurable idiosyncratic unemployment risk. Our framework generates limited cross-sectional household heterogeneity as an equilibrium outcome, thereby making it possible to analyse the role of precautionary saving over the business cycle in an analytically tractable way. The time-series behaviour of aggregate consumption generated by our model is closer to the data than that implied by the hand-to-mouth and representative-agent models, and it is comparable to that produced by the Krusell and Smith (1998) model.

Keywords: Business cycle shocks; Households; Precautionary saving (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2016-02
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Published in The Economic Journal, 2016, vol. 126, pp.135-164

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Related works:
Journal Article: Precautionary Saving Over the Business Cycle (2016) Downloads
Working Paper: Precautionary Saving Over the Business Cycle (2016)
Working Paper: Precautionary Saving over the Business Cycle (2013) Downloads
Working Paper: Precautionary Saving over the Business Cycle (2011) Downloads
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