Quotation Rabitsch, Katrin. 2016. Buffer stock savings in a New-Keynesian business cycle model. WU Economics Working Paper #231.


RIS


BibTeX

Abstract

We introduce the tractable buffer stock savings setup of Carroll (2009 NBER Working Paper) into an otherwise conventional New-Keynesian dynamic stochastic general equilibrium model with financial frictions. The introduction of a precautionary saving motive arising from an uninsurable risk of permanent income loss, affects the model's properties in a number of interesting ways: it produces a more hump-shaped reaction of consumption in response to both supply (technology) and demand (monetary) shocks, and more pronounced reactions in response to demand shocks. Adoption of the buffer stock savings setup thus offers a more microfounded way, compared to, e.g., habit preferences in consumption, to introduce Keynesian features into the model, serving as a device to curbing excessive consumption smoothing, and to attributing a higher role to demand driven fluctuations. We also discuss steady state effects, determinacy properties as well as other practical issues.

Tags

Press 'enter' for creating the tag

Publication's profile

Status of publication Published
Affiliation WU
Type of publication Working/discussion paper, preprint
Language English
Title Buffer stock savings in a New-Keynesian business cycle model
Title of whole publication WU Economics Working Paper #231
Year 2016
URL http://epub.wu.ac.at/id/eprint/5158

Associations

People
Rabitsch-Schilcher, Katrin (Details)
Organization
Institute for International Economics and Development IN (Details)
Research areas (Ă–STAT Classification 'Statistik Austria')
5300 Economics (Details)
5341 Economic policy (Details)
5343 Economic theory (Details)
5371 Macroeconomics (Details)
Google Scholar: Search