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

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

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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 of permanent shocks leads to low precautionary saving and high or low investment, depending on the volatility of temporary… (more)

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Book Details  


Publisher: INTERNATIONAL MONETARY FUND (May 01, 2012)

Format: EPUB

Page count: 20 pages

File size: 1.2 MB

Protection: DRM

Language: English


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