Aggregate Precautionary Savings Motives

67 Pages Posted: 1 Dec 2020 Last revised: 6 May 2024

See all articles by Pierre Mabille

Pierre Mabille

INSEAD - Finance; Centre for Economic Policy Research (CEPR)

Date Written: September 30, 2024

Abstract

This paper analyzes the effect of aggregate risk on households' precautionary savings motives, which complements standard idiosyncratic motives. I propose a new representation of general equilibrium models with heterogeneous households and aggregate risk to decompose the various drivers of precautionary behavior. Precautionary motives due to borrowing constraint shocks are large, nuancing received wisdom about the small impact of business cycles on individuals. They are larger for middle-class households, who are too rich to benefit from social programs but too poor to have enough liquid assets. In aggregate, they are key to help heterogeneous agent models explain periods of creditless recovery.

Keywords: Precautionary savings, borrowing constraints, heterogeneous households, creditless recovery, D52, E21, E30, E44, G51

Suggested Citation

Mabille, Pierre, Aggregate Precautionary Savings Motives (September 30, 2024). INSEAD Working Paper No. 2023/36/FIN, Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2023, Available at SSRN: https://ssrn.com/abstract=3725031 or http://dx.doi.org/10.2139/ssrn.3725031

Pierre Mabille (Contact Author)

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France

HOME PAGE: http://www.pierremabille.com

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
132
Abstract Views
922
Rank
459,819
PlumX Metrics