Working Paper: NBER ID: w26131
Authors: Christopher D. Carroll; Jiri Slacalek; Martin Sommer
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.
Keywords: Saving Dynamics; Wealth Effects; Precautionary Saving; Credit Availability
JEL Codes: D14; E21; E24; E44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| credit availability (G21) | saving rate (D14) |
| household wealth (D14) | saving rate (D14) |
| unemployment expectations (J64) | saving rate (D14) |
| credit availability (G21) | household wealth (D14) |
| wealth fluctuations (G59) | saving rate (D14) |