This paper examines aggregate savings in a general equilibrium model where infinitely lived households face volatile (and possibly uncertain) income paths, hold a risk-free asset, and face a liquidity constraint. I first show that the equilibrium capital stock in an economy without uncertainty,...

A major challenge in the study of saving behavior is how to disentangle different motives for saving. We approach this question in the context of an entire life-cycle model. Specifically, we identify the importance of different saving motives by simultaneously accounting for wealth accumulation...

This paper studies the determinants of inequality in an infnitehorizon general equilibrium model. Missing capital markets decreases motivations for capital accumulation among the poor, while uncertainty about future income leads to precautionary savings. The different returns to saving faced by...

Using detailed micro-data, this paper documents that households with lower income risk (and higher income levels) exhibit a higher Marginal Propensity to Consume (MPC) in response to transitory income shocks, all else being equal. This finding is particularly significant among unconstrained...

We study the effects of permanent and temporary income shocks on precautionary saving and investment in a "store-or-sow" model of growth. High volatility of permanent shocks results in high precautionary saving in the safe asset and low investment, or a "volatility trap." Namely, big savers...

We develop and test a simple model of limited attention in intertemporal choice. The model posits that individuals fully attend to consumption in all periods but fail to attend to some future lumpy expenditure opportunities. This asymmetry generates some predictions that overlap with models of...

We develop and test a simple model of limited attention in intertemporal choice. The model posits that individuals fully attend to consumption in all periods but fail to attend to some future lumpy expenditure opportunities. This asymmetry generates some predictions that overlap with models of...

We develop and test a simple model of limited attention in intertemporal choice. The model posits that individuals fully attend to consumption in all periods but fail to attend to some future lumpy expenditure opportunities. This asymmetry generates some predictions that overlap with models...

"Buffer-stock" models of saving are now standard in the consumption literature. This paper builds theoretical foundations for rigorous understanding of the main features of such models, including the existence of a target wealth ratio and the proposition that aggregate consumption growth equals...

We use a life-cycle model of consumption and portfolio choice to study the effects of social security on the investment decisions of households for the European case. Our model is mainly based on the one developed by Cocco, Gomes, and Maenhout (2005). We extend it by unemployment risk using...