A Paradox of Thrift in General Equilibrium Without Forward Markets
Journal article: After 2008, the US personal saving rate had its strongest postwar jump, from 2% to 5%, and the investment ratio its sharpest fall from its postwar average of 16% to its lowest level of 12%. The coordination of saving and investment is analyzed here in a theoretical model of general equilibrium with rational expectations and no forward market. Shocks affect preferences for future consumption. A paradox of thrift is proven that formalizes an argument in the General Theory of Keynes but the equilibrium is a constrained Pareto optimum. Textbook fiscal policies are neutral at best, or inefficient.
Author(s)
Christophe Chamley
Journal
- Journal of the European Economic Association
Date of publication
- 2012
Keywords JEL
Keywords
- Paradox of thrift
- Coordination
- Incomplete markets
Pages
- 1015-1035
URL of the HAL notice
Version
- 1
Volume
- 10