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Journal Articles Journal of the European Economic Association Year : 2012

A Paradox of Thrift in General Equilibrium Without Forward Markets

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Abstract

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.
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Dates and versions

halshs-00754571 , version 1 (20-11-2012)

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Christophe Chamley. A Paradox of Thrift in General Equilibrium Without Forward Markets. Journal of the European Economic Association, 2012, 10 (6), pp.1015-1035. ⟨10.1111/j.1542-4774.2012.01097.x⟩. ⟨halshs-00754571⟩
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