Dissecting Saving Dynamics: Measuring Wealth, Precautionary and Credit Effects

52 Pages Posted: 30 Oct 2019

See all articles by Christopher D. Carroll

Christopher D. Carroll

Johns Hopkins University - Department of Economics; National Bureau of Economic Research (NBER)

Jiri Slacalek

European Central Bank (ECB)

Martin Sommer

International Monetary Fund (IMF) - Research Department

Multiple version iconThere are 3 versions of this paper

Date Written: September 18, 2012

Abstract

We argue that the U.S. personal saving rate's long stability (from the 1960s through the early 1980s), subsequent steady decline (1980s-2007), and recent substantial increase (2008-2011) can all be interpreted using a parsimonious 'buffer stock' model of optimal consumption in the presence of labor income uncertainty and credit constraints. Saving in the model is affected by the gap between 'target' and actual wealth, with the target wealth determined by credit conditions and uncertainty. An estimated structural version of the model suggests that increased credit availability accounts for most of the saving rate's long-term decline, while fluctuations in net wealth and uncertainty capture the bulk of the business-cycle variation.

Keywords: Consumption, Saving, Wealth, Credit, Uncertainty

JEL Classification: E21, E32

Suggested Citation

Carroll, Christopher D. and Slacalek, Jiri and Sommer, Martin, Dissecting Saving Dynamics: Measuring Wealth, Precautionary and Credit Effects (September 18, 2012). ECB Working Paper No. 1474, Available at SSRN: https://ssrn.com/abstract=2148382

Christopher D. Carroll (Contact Author)

Johns Hopkins University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Jiri Slacalek

European Central Bank (ECB) ( email )

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Germany

Martin Sommer

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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