Dissecting Saving Dynamics: Measuring Wealth, Precautionary, and Credit Effects

Author/Editor:

Christopher Carroll ; Martin Sommer ; Jiri Slacalek

Publication Date:

September 1, 2012

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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 in the presence of labor income uncertainty and credit constraints. Saving in the model is affected by the gap between ‘target’ and actual wealth, with the target wealth determined by 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 fluctuations in net wealth and uncertainty capture the bulk of the business-cycle variation.

Series:

Working Paper No. 2012/219

Subject:

Credit Disposable income Income Labor Money National accounts Personal income Unemployment

English

Publication Date:

September 1, 2012

ISBN/ISSN:

9781475505696/1018-5941

Stock No:

WPIEA2012219

Pages:

47

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