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...

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...

Partial equilibrium models suggest that when uncertainty increases, agents increase savings and at the same time reduce investment in irreversible goods. This paper characterizes this problem in general equilibrium with technology shocks, additive output shocks and shocks to the marginal...

This paper explores a rational economic explanation for the much discussed credit card debt puzzle. We set-up and simulate a generalization of the buffer-stock consumption model with longterm revolving debt contracts. In line with US credit card law, lenders can always deny households access to...

This paper addresses the credit card debt puzzle using a generalization of the buffer‐stock consumption model with long‐term revolving debt contracts. Closely resembling actual US credit card law, we assume that card issuers can always deny their cardholders access to new debt, but that they...

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...

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...

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...