Aggregate Precautionary Savings Motives

60 Pages Posted: 1 Dec 2020 Last revised: 28 Nov 2022

Date Written: November 20, 2022


This paper analyzes the effect of aggregate risk on households' precautionary savings, a new channel that complements the standard idiosyncratic precautionary motive. I build a general equilibrium model with incomplete markets, heterogeneous households, and aggregate risk to decompose the drivers of precautionary savings. The precautionary motive due to credit supply shocks is large, at odds with received wisdom about the low costs of aggregate fluctuations. It is larger for middle-class households, who are too rich to benefit from social programs but too poor to have enough liquid assets. Aggregate precautionary motives are important because they imply that aggregate shocks can have permanent effects even when they are temporary.

Keywords: Household finance, precautionary savings, liquid assets, household debt, borrowing constraints

JEL Classification: D14, D52, E21, E44, G11, G51

Suggested Citation

Mabille, Pierre, Aggregate Precautionary Savings Motives (November 20, 2022). INSEAD Working Paper No. 2022/56/FIN, Available at SSRN: or

Pierre Mabille (Contact Author)

INSEAD - Finance ( email )

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