Precautionary Saving Over the Business Cycle

Edouard Challe (1, 2) , Xavier Ragot (3, 4, 5)

1 CREST - Centre de Recherche en Économie et Statistique
2 X-DEP-ECO - Département d'Économie de l'École Polytechnique
3 PSE - Paris-Jourdan Sciences Economiques
4 PSE - Paris School of Economics
5 OFCE - Observatoire français des conjonctures économiques (Sciences Po)

We study the macroeconomic implications of time-varying precautionary savings within a general equilibrium model with borrowing constraints, aggregate shocks and uninsurable idiosyncratic unemployment risk. Our framework generates limited cross-sectional household heterogeneity as an equilibrium outcome, thereby making it possible to analyse the role of precautionary saving over the business cycle in an analytically tractable way. The time-series behaviour of aggregate consumption generated by our model is closer to the data than that implied by the hand-to-mouth and representative-agent models, and it is comparable to that produced by the Krusell and Smith (1998) model.

Mots clés: Business Cycle; Business cycle shocks; Households; Precautionary saving

Domaines: Economies et finances

Edouard Challe, Xavier Ragot. Precautionary Saving Over the Business Cycle. The Economic Journal, 2016, 126 (590), pp.135 - 164. ⟨10.1111/ecoj.12189⟩. ⟨halshs-01313771⟩