The volatility trap: Precautionary saving, investment, and aggregate risk

摘要: We study the effects of permanent and temporary income shocks on precautionary saving investment in a “store†or†sow†model growth. High volatility results high safe asset low or “volatility trap,†namely, big savers invest relatively little. In contrast, leads to investment, depending shocks. Empirical evidence shows nonlinear relationship between that is hump†shaped function shocks, as predicted by model.