Saving on a Rainy Day, Borrowing for a Rainy Day

نویسندگان

  • Sule Alan
  • Thomas Crossley
چکیده

The aim of this paper is to understand what a recession means for individual consumers, and to model in a life-cycle framework how individuals respond to recessions. Our focus is on the sharp increase in savings rates that have been observed in the current and recent recessions. We show empirically that these saving spikes were short-lived and common to all working age groups. We then study life-cycle models in which recessions involve one or more of: (i) an aggregate permanent negative shock to individual income; (ii) an increase in the variance of idiosyncratic permanent shocks; (iii) a tightening of credit constraints; (iv) asset market crashes. In simulations and in the data we aggregate explicitly from individual behavior. We model credit tightening as a constraint on new borrowing. We show that the rise in the aggregate savings ratio is driven by increases in uncertainty, rather than tighening of credit; temporary shocks to the supply of credit generate increases in saving only among younger agents. We are grateful to Olympia Bover, Chris Carroll, Cristina deNardi and various conference and seminar participants for comments, and to Cormac O’Dea for help with the data. Low gratefully acknowledges funding from the ESRC as a Research Fellow, grant number RES-063-27-0211. This research was also co-funded by the ESRC-funded Centre for Microeconomic Analysis of Public Policy (CPP, reference RES-544-28-5001). All errors are our own.

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تاریخ انتشار 2012