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

Abstract

We argue that the U.S. personal saving rate's long stability (from the 1960s through the early 1980s), subsequent steady decline (1980s2007), and recent substantial increase (20082011) can all be interpreted using a parsimonious`buer stock' model of optimal consumption in the presence of labor income uncertainty and credit constraints. Saving in the model is aected 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 uctuations in net wealth and uncertainty capture the bulk of the business-cycle variation.

Testing the Empirical Relevance of the ‘Saving for a Rainy Day’ Hypothesis in US Metro Areas

“…Our finding therefore suggests that the large declines in housing equity in the aftermath of the subprime crash have strongly dampened consumer spending in the US. A similar conclusion is reached by Aron et al (2012), Carroll et al (2012) and Mian et al (2013).…”

“…While their results suggest that all three channels are important, they find that the largest contributor to the recent increase in the savings rate is the drop in household wealth. Our results are consistent with the findings in Carroll et al (2012) and Mian et al (2013). Campbell (1987) derived the implication that, under the null hypothesis of the PIH, saving should encapsulate the superior information of the agent to the econometrician, meaning that lagged saving should Granger-cause income in a bivariate VAR.…”

“…mulated wealth of the housing crash, i.e. that there are sizeable housing wealth effects on consumption, see also Carroll et al (2012) and Mian et al (2013). 14…”

Consumption, Credit, and the Missing Young

“…Our empirical specification is similar to the one in Demyanyk et al (2019) and relates consumption growth to consumers' available resources as well as to measures of uncertainty and access to credit, in the vein of Carroll, Slacalek, and Sommer (2012). Both papers are based on the Carroll (1997) and Deaton (1991) buffer-stock model of saving, in which prudent but impatient consumers, subject to uncertainty and credit constraints, target a certain level of wealth for precautionary reasons.…”

Estimation of Effects of Recent Macroprudential Policies in a Sample of Advanced Open Economies

“…In recent years, in particular following the global financial crisis that became an income and job crisis, several empirical contributions have recognised the importance of debt and of housing prices in the complex processes that drive economic fluctuations in advanced economies with liberalised credit markets. For example, three studies with consistent findings for the US saving rate dynamics were presented by Carroll et al (2012), Mian et al (2013) and Anundsen and Nymoen (2019). Using a dataset with long historical time series for 14 advanced economies, Jordà et al (2013) concluded that financial factors play an important role in the modern business cycle (see also Anundsen et al (2016)).…”