Dissecting Saving Dynamics: Measuring Wealth, Precautionary, and Credit Effects

36 Pages Posted: 7 Aug 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

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Date Written: August 2019

Abstract

We show that an estimated tractable ‘buffer stock saving’ model can match the 30-year decline in the U.S. saving rate leading up to 2007, the sharp increase during the Great Recession, and much of the intervening business cycle variation. In the model, saving depends on the gap between ‘target’ and actual wealth, with the target determined by measured credit availability and measured unemployment expectations. Following financial deregulation starting in the late 1970s, expanding credit supply explains the trend decline in saving, while fluctuations in wealth and consumer-survey-measured unemployment expectations capture much of the business-cycle variation, including the sharp rise during the Great Recession.

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Suggested Citation

Carroll, Christopher D. and Slacalek, Jiri and Sommer, Martin, Dissecting Saving Dynamics: Measuring Wealth, Precautionary, and Credit Effects (August 2019). NBER Working Paper No. w26131, Available at SSRN: https://ssrn.com/abstract=3432164

Christopher D. Carroll (Contact Author)

Johns Hopkins University - Department of Economics ( email )

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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 )

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Washington, DC 20431
United States

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