The joint behaviour of US aggregate consumption and saving over the period 20072009, and notably the pronouned U-shaped pattern of consumption together with the rise in saving, are difficult to reconcile with the view that financial markets are frictionless. We propose an alternative framework...

In this paper, we analyse the effects of transitory fiscal expansions when public debt is used as liquidity by the private sector. Aggregate shocks are introduced into a tractable flexible-price, incomplete-market economy where heterogenous, infinitely-lived agents face occasionally binding...