The Volatility Trap: Precautionary Saving, Investment, and Aggregate Risk

Working Paper No. 12/134

Nopic
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 invest relatively little. In contrast, low volatility... READ MORE...

Publication date: May 2012
ISBN 9781475503869
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Publication date: May 2012

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Publication date: May 2012

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