Precautionary Savings, Illiquid Assets, and the Aggregate Consequences of Shocks to Household Income Risk
By Christian Bayer, Ralph Lütticke, Lien Pham-Do, Volker Tjaden. Econometrica, 2019
187 citations recorded by the source corpus.
Households face large income uncertainty that varies substantially over the business cycle. We examine the macroeconomic consequences of these variations in a model with incomplete markets, liquid and illiquid assets, and a nominal rigidity. Heightened uncertainty depresses aggregate demand as households respond by hoarding liquid ``paper'' assets for precautionary motives, thereby reducing both illiquid physical investment and consumption demand. This translates into output losses, which a central bank can prevent by providing liquidity. We show that the welfare consequences of uncertainty shocks crucially depend on a household's asset position. Households with little human capital but high illiquid wealth lose the most from an uncertainty shock and gain the most from stabilization policy.
Subfields: Accounting, Economics and Econometrics, Soil Science
View Paper: https://www.semanticscholar.org/paper/f1d634044b594aa496d81f44fc6e957438d983f7
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Citations in the corpus
- CENTRAL BANK POLICIES AND INCOME AND WEALTH INEQUALITY: A SURVEY (2019, unknown): “Bayer et al. (2019) and Luetticke (2018) emphasize the redistributive effects due to the portfolio composition channel .”
- Transmission of Monetary Policy with Heterogeneity in Household Portfolios (2018, methodology): “To reduce the dimensionality of the problem I follow Bayer et al. (2015) and approximate the three-dimensional distribution Θt by a distribution that”
- The Fiscal Multiplier (2019, unknown): “…and Lorenzoni (2015), Gornemann et al. (2012), Kaplan et al. (2016), Auclert (2016) and L¨utticke (2015), McKay and Reis (2016), McKay et al. (2015), Bayer et al. (2015), Ravn and Sterk (2013) and Den Haan et al. (2015), but we are not aware of any contribution in this literature which considers…”
- Microeconomic Heterogeneity and Macroeconomic Shocks (2018, unknown): “(2017) and Bayer et al. (2017) argue that the precautionary saving response to an increase in labor market risk causes households to substitute away from consumption expenditures into non-productive, safe assets (such as government bonds), which can trigger a demanddriven recession. Although they di”