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SUMMARY:Precautionary Saving and Aggregate Demand - M. Edouard Challe is a
  CNRS researcher and associate professor of Economics at Ecole Polytechniq
 ue
DTSTART:20150305T130000Z
DTEND:20150305T140000Z
UID:TALK54318@talks.cam.ac.uk
CONTACT:Cerf Admin
DESCRIPTION:How do fluctuations in households’ precautionary wealth cont
 ribute to the propagation of aggregate shocks? In this paper\, we attempt 
 to answer this question by formulating and estimating a tractable structur
 al model of the business cycle with incomplete insurance against idiosyncr
 atic risk\, nominal frictions\, and involuntary unemployment. Time-variati
 ons in precautionary wealth have two conflicting effects on output volatil
 ity: a stabilizing “aggregate supply” effect working through the suppl
 y of capital and potential output\; and a destabilizing “aggregate deman
 d effect” working through aggregate consumption and the output gap. We q
 uantify these forces via a maximum-likelihood estimation of the structural
  parameters of the model\, using as observables both aggregate and cross-s
 ectional information (such as the extent of consumption insurance and the 
 distributions of wealth and consumption across households). We find the im
 pact of demand shocks on aggregates to be significantly altered by time-va
 rying precautionary savings.\n"Paper is available here":https://dl.dropbox
 usercontent.com/u/3329694/Working%20papers/CMRR_PSAD_2014_12_17.pdf
LOCATION:Room W4.06 Judge Business School
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