A Paradox of Thrift in General Equilibrium Without Forward Markets

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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Submitted on : Tuesday, November 20, 2012 - 9:55:30 AM
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Christophe Chamley. A Paradox of Thrift in General Equilibrium Without Forward Markets. Journal of the European Economic Association, Wiley, 2012, 10 (6), pp.1015-1035. ⟨10.1111/j.1542-4774.2012.01097.x⟩. ⟨halshs-00754571⟩



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