Events at CERGE-EI

Dr. Jiří Slačálek

European Central Bank, Frankfurt am Main, Germany

Authors: Christopher Carroll, Jiří Slačálek, and Martin Sommer

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 choice in the presence of labor income uncertainty and credit constraints. Saving in the model is affected by the gap between ‘target’ and actual wealth, while the target depends on 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 the gap between target and actual wealth captures the bulk of the business-cycle variation (including an important part attributable to cyclical movements in the precautionary motive).

Full Text: “Dissecting Saving Dynamics: Measuring Credit, Wealth and Precautionary Effects”