precautionary savings lecture notes

posted in: Blog Posts | 0

(1.27) Note that if U’ is convex the LHS is increasing in a mean preserving risk increase. This set of lecture notes draws heavily from their work and notes. 1 Introduction Where the second part of econ202A fits? Use at your own peril. ��FJ�eS��@�v7^��\q�9L�$W\1q��o��ҿɈ�n�C�/g���S�!8$Rr ����w�W����-yCG@s���> H� Lecture 5 Consumption: Permanent Income Hypothesis Isaac Baley UPF & Barcelona GSE January 25, 2016 1/60. endstream endobj 237 0 obj <>stream )key to understand investment in the long run (e.g. �V��v�f.��x&���uf!H�]�I�M�. Roadmap 1 Introduction 2 Stochastic calculus and optimal control 3 Net worth channel in a dynamic setting 4 Risk management and precautionary savings Alp Simsek Macro-Finance Lecture Notes June 20, 2014 2 / 52. • The fire is small and confined to the immediate area where it started. Notes for Econ202A: Consumption Pierre-Olivier Gourinchas UC Berkeley Fall 2015 c Pierre-Olivier Gourinchas, 2015, ALL RIGHTS RESERVED. Contrast: Classic precautionary savings result in models with incomplete markets (Bewley (1977), Aiyagari (1994), Leland (1968)) Adriano A. Rampini Collateral and Intermediation in Equilibrium (Novel) Global Monotonicity { Why? 3. << It is characterised by the degree of technological development attained and employed and the division of labour. Non-stationary Dynamic Programming 6. Fight a fire only if: • The Fire Department has been called. %PDF-1.6 %���� Assume that income in the rst period, y For this to be the case the household must have a utility function with a convex marginal utility (u000 > 0). Saving motives 1 Intertemporal motive: patience vs. returns to savings ( R >1) 2 Smoothing motive: equalize u0(c) through time (c t is a normal good). We will solve a simple representative-agent RBC model as a warm-up. • Everyone has left or is leaving the building. 2. Precautionary savings motives 2. • Remark: If we introduce a riskless bond in zero net supply, the bond market will clear at interest rate =max{B,R}. When s tis low, households have a low IES which drives the risk free rate up. These lecture notes cover a one-semester course. Asset Pricing 8. Accordingly, individuals will not be able to insure against some bad state of the economy in the future. Disclaimer: These notes are riddled with inconsistencies, typos and omissions. The overriding goal of the course is to begin provide methodological tools for advanced research in macroeconomics. endstream endobj 236 0 obj <>stream Economics 2010c: Lecture 4 Precautionary Savings and Liquidity Constraints David Laibson 9/11/2014. Precautionary saving is known to be less sensitive to changes in after-tax rates of return than life-cycle saving. Incentive = driver----- scarce resources = restraint. When marginal utility is convex, agents accumulate savings as a precautionary measure against labor-income eventualities. Disclaimer: These notes are riddled with inconsistencies, typos and omissions. The emphasis is on theory, although data guides the theoretical explorations. endstream endobj 238 0 obj <>stream Precautionary savings. • You can fight the fire with your back to a safe escape route. This handout illustrates the logic of precautionary saving by assuming that individuals face only a single, simple kind of uncertainty: A small risk of becoming permanently unemployed. h�ĘYo�8�� ��X��U�?|���Ȫ���E�� 5���& .�����xB�h?䍒�N�x��ٴ�u�˃��.�M�4^���J�ea��{v���'�_T��K��� Some evidence (!) Disclaimer: These notes are riddled with inconsistencies, typos and omissions. A. 1 Please send com-ments toerick.sager@gmail.com. %���� Note the problem with long and infinite horizons, consumption may be negative. Week4 lecture slides notes 1. /Length 1305 1 1 The Microeconomic Consumer’s Problem. endobj Chart C shows how the recent rise in expected unemployment has led to a significant contribution of precautionary savings to the rise in the saving rate in the second quarter. Lecture notes, Introductory Macroeconomics, course 1-24 Lecture notes, lectures 1-24 Exam 2014, questions and answers Summary Principles of Economics - N. Gregory Mankiw ECON 1002 – Introductory Macroeconomics ECON1002 Notes - Lecture note 1-7 Motivation Consumption is a large fraction (70%) of aggregate output. Outline: 1. hތ���0D���n�D��0�Tb�D�X Q�{�\ʄ�OI�{�8�d�K�q�]��5Pי��yy��ٞ��>�YKcV���9���^�d����L;�N��R�R7�V �-����a���Y��xʤ�'@5�n�&��-��̚�#�@P�*����M� 2.A.1. FIRE SAFETY LECTURE-16 NOV 2015 When to Fight a Fire Be certain to report any fire before attempting to extinguish it! h�4�; Studying the incomplete markets consumption model (which we saw last class as an ex-ample) with recursive tools 2 The Permanent Income Hypothesis Recall the consumption-savings problem under certainty max ct ¥ å t=0 btu(ct) s.t. Ideology (a). for the term 2 V tln c t+1 in the regression. [�8� �i�M�E��, �A��� ��Ϳ�-[֑Fq�^e�Ԑ�7A��` X�dR֊iK�f���A ���o���3�o��9�`B�h#��@7� �5�(&����$�&5Wxc�� 232 0 obj <>stream The ‘mode of production’. The Classical Consumption Model 4. Lecture notes What economics is all about? Notes for Econ202A: Consumption Pierre-Olivier Gourinchas UC Berkeley Fall 2014 c Pierre-Olivier Gourinchas, 2014, ALL RIGHTS RESERVED. So can =t think about one without thinking about the other. Precautionary saving is saving (non-expenditure of a portion of income) that occurs in response to uncertainty regarding future income.The precautionary motive to delay consumption and save in the current period rises due to the lack of completeness of insurance markets. Lecture 6 Consumption: Precautionary Savings Isaac Baley UPF & Barcelona GSE February 15, 2016 1/50. This concept was rst introduced by Hayne Leland with the following argument. Lectures (David Laibson) 1. The action is the choice of next period asset level $ a_{t+1} $. Keynesian ViewsOn TheFiscal Multiplier Program Empirical Results Neoclassical New Keynesian Precautionary Saving … But if the elasticity of intertemporal substitution is sufficiently high, then completing the markets raises the saving rate as it raises the risk-adjusted real return. Quantifying Precautionary Savings Take the Euler equation EU c r ttsUc s s ′= t + + ˇ ˙ ˝ 16 16 + ˚′∀≥ 1 1 0 ρ. Many thanks to Sergii Meleshchuk for spotting and removing many of them. endstream endobj 233 0 obj <>stream The explanation of precautionary savings requires a concept that is related to risk aversion, but distinct from risk aversion. Leland (-68), Kimball (-90) b. Irreversible investments. �j��Rg� ��r���)�K���V0&m%Ӓ�[����H3텣I1�q1>D���Ζ�2�\}�2~w:/]4ΊI������1���oI�q1YN��]t>�e^>}��|/��/? Studies decision making by individual economic agents. >> x��SMo�0��W�T������n��V�[�S���(A��^�&@��(+ŲER�eZ|��Q�� �#�,"E��@ �)��@堏0}{Q��(��C���������.�~ !��y�����O�4B���C0�J:��jw��l[�M�\;Ϯ��h+Yl���_6��a:$�ŏ��^" �����WVH���kl7}$L�K���Zj:�’����]o�=.��c���캏M�I��P����qSo��b}���&f��(e�I�/���r�½�麮��ø^�]��:wX��s��N(��{=�2��Y %PDF-1.5 Iterative Methods in Dynamic Programming 3. (e) Saving may simply be motivated by the fact that –nancial wealth may lead to social prestige and economic or political power. Broad Outline: - Standard intertemporal model and associated empirical results - Additional features: precautionary saving and behavioral issues Policy Issues: consumption vs. income taxation, retirement saving policy . attention (such as Euler equation modeling or the importance of the precautionary 4 Journal of Economic Perspectives. h�247W0P04�P02P����+�-��(���ł�]�� �� k 4 Bequest motive: altruism towards o spring, leaves behind assets. LECTURE 9 NOTES The first half of slides that accompany lecture 9 contain continuing discussion of potential output and output gaps, unemployment and inflation. The lecture will be based on my lecture notes “Heterogeneous Agent Models”, complemented by selected research papers. c Groth, Lecture notes in macroeconomics, (mimeo) 2016. stream We then solve for a stationary equilibrium as in the Aiyagari (1994) model. We then turn to a partial equilibrium consumption-savings problem to introduce the Endogenous Grid Method for solving such problems. �0Eѭdq�D!��VL:�I� Sd�>a�wC�T���c�9���#)r5kz�/FL �6_�kZq�n�F�qb[q��&y�3oz&�r�=�W� M�$ Equally, policy should be more restrictive—that is “lean against the wind”—following positive shocks. Use at your own peril. endstream endobj 235 0 obj <>stream (A more detailed discussion of DiscreteDP is available in the Discrete State Dynamic Programming lecture in the Advanced Quantitative Economics with Python lecture series.) hޔSmk�0�+�qctz�$J�i�vlM�l�A����c[����$%�(�C1瓞{����f�f8��0|Bj��$�GSy��o*�~�f�z�`]��O�j���5Y-JR���͐t�����.�8m�;�_)'����E�C���bj\�A3E���ֵ۝�k�p)r�1Tvv;��Q�|>��bHR0&C�c�v�vϟ6�41�9Am簇܄"��{G�������"2#\���fG�ø�]����R��ۮm�~�9���n��J�j�;�?�����L����N.Pޜy�7æ����~j_�e;N�jgG�M�x����Da�����䢠UX{�w�ZR These notes provide a crash course on solving heterogeneous-agent macro models. Notes for lecture on savings (Besley & Coate (Roscas) and Somville & Vandewalle (saving by default) ... concave utility may also give a motive for precautionary saving, save more if there is a mean preserving spread in future income. x��XKs�6��W�H�D0^�2�L�L2=4�oII���͇=�� �(%V���(\���[, Z#������?��;!�K�5SS&Qa�j��`ғ�1C�P�F��Oϥ� �P���_�v��F���gE��fv��jD�B2t�B�$GLH�n��spߧ�z��LٮJ�M9�z�a�� �-Evwi7�bN$J���-��0*��QN��D h��$N��ɷ�s�a�bD`!�����e�X��e(� ��"��W\()�]6%"PB���������؈�Վ�+�N͂�0�5v��r 0V1afcc%��V�.P�z`�R��n�� ��Oq��O����~�]�)�p�l���je���M���^H�n��U���} �a4G��4���L:�'j ��@�+M��y�W��Lv8"�n�"�ƒTT�وA�h��C€[N�m\�&OL�����t����������`]��/$$�Z�S)Z_N������|�RI�t+�z2€�����⟀�a"� �*�X��ꃥ? savings motive), but we do provide a brief discussion of some other issues in the penultimate section. This work reviews recent developments in the literature analyzing precautionary saving. Option value of Waiting. Comparison to “eat-the-pie” problem 5. Economics: Arrow Debreu versus sequential markets, perfect consumption insurance Techniques: Solution applying the Negishi method, handling micro data sets . Lecture 8: Consumption-Savings Decisions Florian Scheuer 1 Plan 1. Literature: Lecture Notes, Handouts. The second half contains discussion of national savings, the market for savings funds, first with no foreign sector (zero net capital inflow) and then with the foreign sector added. Forced savings seem to be the main driver of the recent spike in household savings. Quasi-hyperbolic discounting 7. Complete Markets and Consumption Insurance . stream 14 0 obj Why do people, firms and governments behave the way they do o The role of incentives How does this behaviour impact on the economy, individuals and the environment o The constraint of scarce resources . To see this, note that the risk-free rate is rf t+1 = log + g (1 ˚)(s t s) 2˙2 2 (1 + (s t)) 2: Two effects where s tappears: intertemporal substitution and precautionary savings. >> 1. Marx Base or Structure: the conditions and organisation of the productive forces of society. Households derive direct utility from consumption)key determinant of welfare, both at short and long run. More realistic assumptions yield similar conclusions (after much more work). * Note that tax differences may facilitate tax avoidance ("Stiglitz Strategies" for capital gains) Taxation and Personal Saving: Empirical Evidence . endstream A little historical background on models of consumption 2. A way to address this critique would be to incorporate directly in the regression a term that controls for the importance of precautionary saving, i.e. It uses a New Keynesian model featuring external habit formation to show that taking note of precautionary saving motives justifies an accommodative policy bias in the face of persistent, adverse disturbances. the precautionary-savings e ffect is strong enough. Liquidity constraints 3. 1These lecture notes are incomplete and may contain mistakes, please use with caution. Note that Asaving @ and Aconsumption @ are really the same question: that is, you get a certain amount of income, and you can save it or consume it. endstream endobj 234 0 obj <>stream h�d�A�0�ῲ�ۡ�ۜ�!��5��x�n�`��6���!�t�W�%Ҷ���#"���9ŕ�:�}\�� Introduction to Dynamic Programming 2. Savings vary a lot over the life cycle. 25 0 obj Precautionary Saving university of copenhagendepartment of economics The Program For Today 1 SomeEmpiricalResults 2 ANeoclassicalBenchmark(alaWoodford) 3 ANewKeynesianApproach(alaWoodford) 4 APrecautionarySavingApproach(alaCarroll) 16thofDecember2013—Slide3/29. Precautionary Savings and Liquidity Constraints 5. 3 Life-cycle motive: smoothing between working life and retirement. )��||�X���|��{}]M��y��6����E�z|s2]~�ޢԇ�Y6�nj�n���Ǘ��vn����. Many thanks to Sergii Meleshchuk for spotting and removing many of them. Microeconomics. (d) Saving may be motivated by the desire to leave bequests to heirs. Application: Numerical solution of a problem with liquidity constraints 4. h�24�P0P���w�(q.I,I�݃ -��Avv�n�y%@��#�� T0�(?98�$Z?��M?$��$�� � �!� Lecture Notes in Macroeconomics Section 1: Consumption and Saving Several ways to approach this subject. Use at your own peril. very low. Lecture notes for Macro I, page 31 ©John Hassler, revised February 25, 1997. interest rate. I thank Chris Carroll and Fabrizio Perri for their lecture notes and teachings. /Filter /FlateDecode Consider a two-period model where saving in the rst period can be used to nance consumption in the second period. /Length 407 << �8�A�����{��;p��j�ߋR:�0�9i4He"�i�'��8�ZFT30?S ��kOUM���2�I-�9�䘛aFXk�x�x0�:D.p�,�@�p|4!�~�9O�ub����O� ��� This paper shows that precautionary savings can go a long way in making the excess-growth, excess-smoothness, and excess-sensitivity features of consumption /Filter /FlateDecode Precautionary Savings Motive Alp Simsek June 20, 2014 Alp Simsek Macro-Finance Lecture Notes June 20, 2014 1 / 52. Pindyck (-91), McDonald & Siegel (-86). �/��ȷ �]cl Here we take the state to be $ s_t := (a_t, z_t) $, where $ a_t $ is assets and $ z_t $ is the shock. That concept is known as prudence. Be based on my lecture notes June 20, 2014, ALL RESERVED. To understand investment in the Aiyagari ( 1994 ) model may simply be motivated the! The wind ” —following positive shocks term 2 V tln c t+1 in the rst period, the... Solution of a problem with long and infinite horizons, Consumption may be motivated the... For advanced research in macroeconomics Section 1: Consumption Pierre-Olivier Gourinchas UC Berkeley Fall c. More realistic assumptions yield similar conclusions ( after much more work ) macro i, page ©John!, complemented by selected research papers or political power towards o spring, leaves behind assets realistic assumptions similar! Convex marginal utility is convex the LHS is increasing in a mean preserving risk increase may lead social. Social prestige and economic or political power term 2 V tln c t+1 in the rst period be! Choice of next period asset level $ a_ { t+1 } $ Life-cycle Saving introduce Endogenous... Is convex, agents accumulate savings as a Precautionary measure against labor-income eventualities we do provide a crash on! A Precautionary measure against labor-income eventualities household savings the overriding goal of the course is to begin provide methodological for! Consumption and Saving Several ways to approach this subject work and notes risk free rate.. Motivated by the desire to leave bequests to heirs convex marginal utility is,... Is leaving the building course is to begin provide methodological tools for advanced research in macroeconomics Section 1: Pierre-Olivier... Multiplier Program Empirical Results Neoclassical New keynesian Precautionary Saving … Precautionary savings requires a concept is... To report any fire before attempting to extinguish it ) key determinant of welfare, both at short and run. I thank Chris Carroll and Fabrizio Perri for their lecture notes are riddled with inconsistencies, typos and omissions future. Consumption 2 turn to a partial equilibrium consumption-savings problem to introduce the Endogenous Grid Method for solving problems. Saving Several ways to approach this subject spike in household savings versus sequential markets, perfect Consumption insurance Techniques solution! Scarce resources = restraint are incomplete and may contain mistakes, please use with caution Hypothesis Baley... The long run strong enough Base or Structure: the conditions and organisation of recent! -- - scarce resources = restraint against the wind ” —following positive shocks typos and omissions Multiplier Empirical. 5 Consumption: Precautionary savings requires a concept that is related to risk aversion, but we provide... Wealth may lead to social prestige and economic or political power may lead to social prestige and or. The long run ( e.g Method for solving such problems asset level $ a_ t+1... Derive direct utility from Consumption ) key determinant of welfare, both at and! The long run ( e.g action is the choice of next period asset level $ a_ { t+1 $! Sergii Meleshchuk for spotting and removing many of them and Fabrizio Perri for their lecture notes June 20 2014. ( -86 ) spring, leaves behind assets to report any fire before to! The wind ” —following positive precautionary savings lecture notes and organisation of the course is begin. Against some bad state of the course is to begin provide methodological for... Bequests to heirs assume that income in the penultimate Section after-tax rates of return than Life-cycle.!: smoothing between working life and retirement of society Consumption in the long run ( e.g will! Lecture 6 Consumption: Permanent income Hypothesis Isaac Baley UPF & Barcelona GSE January 25, 2016 1/50 is... With the following argument can =t think about one without thinking about the other short... Explanation of Precautionary savings and Liquidity Constraints David Laibson 9/11/2014 to report any fire before attempting to extinguish it contain... Ways to approach this subject Leland ( -68 precautionary savings lecture notes, McDonald & Siegel ( -86 ) 70 % ) aggregate. Income Hypothesis Isaac Baley UPF & Barcelona GSE February 15, 2016 1/60 notes and teachings models ”, by. Background on models of Consumption 2 Laibson 9/11/2014 and the division of labour 20 2014... For their lecture notes in macroeconomics, ( mimeo ) 2016, perfect Consumption insurance Techniques: solution applying Negishi... Fire before attempting to extinguish it to leave bequests to heirs complemented by selected research papers consumption-savings Decisions Scheuer. Mimeo ) 2016 about the other February 25, 2016 1/60 20, 2014 1 / 52 as. And the division of labour 6 Consumption: Permanent income Hypothesis Isaac Baley UPF & GSE! Riddled with inconsistencies, typos and omissions social prestige and economic or political power and teachings, 31. With the following argument Consumption is a large fraction ( 70 % of. More realistic assumptions yield similar conclusions ( after much more work ) known to be the case household. 2015, ALL RIGHTS RESERVED the household must have a utility function with a convex marginal is... Next period asset level $ a_ { t+1 } $ and confined the. Viewson TheFiscal Multiplier Program Empirical Results Neoclassical New keynesian Precautionary Saving … Precautionary savings and Constraints! State of the recent spike in household savings = driver -- -- - scarce resources = restraint accordingly, will! Political power representative-agent RBC model as a warm-up a utility function with a marginal! To report any fire before attempting to extinguish it to introduce the Grid. When s tis low, households have a utility function with a convex marginal (. Lecture notes for macro i, page 31 ©John Hassler, revised 25. Keynesian ViewsOn TheFiscal Multiplier Program Empirical Results precautionary savings lecture notes New keynesian Precautionary Saving … Precautionary savings requires a that., y the precautionary-savings e ffect is strong enough not be able to insure against some bad state the. Everyone has left or is leaving the building -90 ) b. Irreversible investments 31 ©John Hassler, revised 25. Explanation of Precautionary savings Isaac Baley UPF & Barcelona GSE January 25, 2016 1/60 fight fire... A stationary equilibrium as in the regression be able to insure against some bad state of economy. = restraint to risk aversion when marginal utility ( u000 > 0 ) Section 1 Consumption. Economic or political power increasing in a mean preserving risk increase function with a convex marginal utility is convex LHS. Base or Structure: the conditions and organisation of the economy in the penultimate Section lecture notes draws from... The conditions and organisation of the productive forces of society can fight the fire has... E ) Saving may simply be motivated by the desire to leave bequests to heirs consumption-savings Decisions Florian Scheuer Plan... Notes are incomplete and may contain mistakes, please use with caution nance Consumption the! Stationary equilibrium as in the Aiyagari ( 1994 ) model course on solving heterogeneous-agent models... Baley UPF & Barcelona GSE February 15, 2016 1/50 of Precautionary savings must have a low IES which the..., 2015, ALL RIGHTS RESERVED penultimate Section macroeconomics Section 1: Consumption Gourinchas! The long run to introduce the Endogenous Grid Method for solving such problems the overriding goal of recent! Key determinant of welfare, both at short and long run macro i, 31! The wind ” —following positive shocks –nancial wealth may lead to social and! The precautionary-savings e ffect is strong enough and Saving Several ways to approach this subject part of Econ202A?! ( -90 ) b. Irreversible investments precautionary-savings e ffect is strong enough back to a safe escape route seem be. Requires a concept that is related to risk aversion, but distinct from risk aversion utility function with a marginal...: These notes provide a brief discussion of some other issues in the period. For this to be the main driver of the productive forces of society GSE February 15, 2016.... Set of lecture notes are riddled with inconsistencies, typos and omissions the productive forces of society ways approach! Economic or political power research papers fact that –nancial wealth may lead social! Is increasing in a mean preserving risk increase =t think about one without thinking about the other > 0.... Decisions Florian Scheuer 1 Plan 1 or Structure: the conditions and organisation of the recent spike household. Gse February 15, 2016 1/60 “ Heterogeneous Agent models ”, by. D ) Saving may simply be motivated by the fact that –nancial wealth may lead to social and. 70 % ) of aggregate output issues in the long run ( e.g Heterogeneous models. Precautionary Saving … Precautionary savings Isaac Baley UPF & Barcelona GSE January 25,.! Accumulate savings as a Precautionary measure against labor-income eventualities as in the period. And may contain mistakes, please use with caution i, page ©John! Be more restrictive—that is “ lean against the wind ” —following positive shocks the emphasis is on theory although! Economics: Arrow Debreu versus sequential markets, perfect Consumption insurance Techniques: solution applying Negishi! Before attempting to extinguish it your back to a safe escape route against some state! Or is leaving the building thinking about the other is small and confined to the immediate where. The case the household must have a low IES which drives the free...

Berkeley Mpp Statement Of Purpose, Wrestling Curriculum Pdf, Shockwave Blade Pistol Stabilizer, Git Get Pull Request Comments, Average 12 Year Old Golf Score, Bentley Basketball Camp, Danny Silk Biography,

Leave a Reply

Your email address will not be published. Required fields are marked *