Christopher D. Carroll

Saving and Growth: A Reinterpretation

We examine the relationship between income growth and saving using both cross-country and household data. At the aggregate level, we find that growth Granger causes saving, but that saving does not Granger cause growth. Using household data, we find that households with predictably higher income growth save more than households with predictably low growth. We argue that standard Permanent Income models of consumption cannot explain these findings, but that a model of consumption with habit formation may. The positive effect of growth on saving implies that previous estimates of the effect of saving on growth may be overstated.

Comparison Utility in a Growth Model

We examine the dynamics of two endogenous-growth modelsin which agents have comparison utility. In the inward-lookingeconomy, individuals care about how their current consumptioncompares with their own past consumption. In the outward-lookingeconomy, they care about how their own consumption compares withother people‘s consumption. In response to a negative shock tocapital, saving and growth will temporarily fall in both of themodels that we consider but will remain constant in a model withstandard preferences. The decline will be smaller in the outward-than in the inward-looking case, but utility will be lower inthe former case because of a negative externality.

Are There Cultural Effects on Saving? Some Cross-Sectional Evidence

Why are there such large differences in saving rates across countries? Conventional economic analyses have not been successful in explaining international saving differences, so economists have sometimes suggested that national saving differences may be explained by cultural differences. This paper tests the hypothesis that cultural factors influence saving by comparing saving patterns of immigrants to Canada from different cultures. Using data from the Canadian Survey of Family Expenditures, we find no evidence of cultural effects on saving.

Unemployment Risk and Precautionary Wealth: Evidence from Households' Balance Sheets

This paper examines precautionary behavior by relating job-loss risk to household net worth. We use existing best practice and some new strategies to deal with some problematic issues inherent in this literature regarding proxying uncertainty, instrumentation, and incorporating theoretical restrictions. We do not find precautionary variation in the wealth holdings of households with low permanent income, but do find precautionary effects for moderate and higher-income households. When the dependent variable is total net worth, these findings are robust to several alternative specifications. But we do not find precautionary responses in subaggregates of wealth that exclude home equity.

Unemployment Expectations, Jumping (S,S) Triggers, and Household Balance Sheets

This paper examines the relationship between household balance sheets, consumer purchases, and expectations. We find few robust empirical relationships between balance sheet measures and spending, but we do find that unemployment expectations are robustly correlated with spending. We then construct a formal model of durables and nondurables consumption with an explicit role for unemployment and for household debt. We find that the model is capable of explaining several empirical regularities which are, at best, unexplained by standard models. Finally, we show that a loosening of liquidity constraints can produce a runup in debt similar to that experienced recently in the United States, and that after such a liberalization consumer purchases show heightened sensitivity to labor income uncertainty, providing a potential rigorous interpretation of the widespread view that the buildup of debt in the 1980s may have played an important role in the weakness of consumption during and after the 1990 recession.

Why have private savings rates in the United States and Canada diverged

One of the central questions in macroeconomics for many years has been whether government policy can affect private saving rates, and if so to what extent and through what channels. The question has remained controversial because, as with other macroeconomic questions, experiments to check divergent hypotheses cannot be deliberately performed, so economists must rely upon the often dubious evidence from the limited experiments with which nature and history have endowed us. This paper discusses the results of an exceptionally good natural experiment that has been provided by Canada and the U.S. over the past thirty-five years. After moving in tandem for almost 25 years, American and Canadian private saving rates have diverged dramatically over the last decade. The primary conclusion emerging from our analysis of this phenomenon is that tax policies can have a potent impact on private savings behavior. Differences in tax structures and in the interactions of taxation and inflation appear to be important factors explaining the divergent behavior of the American and Canadian private savings rates. Recognizing the importance of asset revaluations, caused partially but not entirely by tax effects, also helps to explain the different behavior of U.S. and Canadian savings. There may also be a relationship between government deficits and the private savings differential.

Does Cultural Origin Affect Saving Behavior? Evidence from Immigrants

A method for use in making multilayered varistors including the steps of forming a plurality of interleaved layers of ceramic material and conductive material, confining the conductive material to spaced areas arranged in rows and columns, displacing the spaced areas of adjacent layers of conductive material from each other, and cutting perpendicularly through the layers. The layers are formed by screen printing.

Solving consumption models with multiplicative habits

This paper provides derivations necessary for solving an optimal consumption problem with multiplicative habits and a CRRA ‘outer’ utility function, either for a microeconomic problem with both labor income risk and rate-of-return risk, or for a macroeconomic representative agent model.

Why Is U.S. National Saving So Low

THE LOW American national saving rate has long been a serious concern to economic policymakers. Increasing national saving and investment was a principal objective of the Economic Recovery Tax Act of 1981 and of the supply-side economic policies that accompanied it. Yet the national saving rate, at least as measured in the National Income and Product Accounts, has declined sharply during the 1980s. Over the past five years, national saving has averaged only 2.3 percent of full-employment GNP, compared with 7.4 percent during 1960-80. In 1986, American net national saving was below 2 percent of GNP, less than half the rate in Britain, less than 30 percent of the rate in France and Germany, and only 10 percent of the rate in Japan. The unprecedented U.S. government budget deficits of recent years are often singled out for blame. Government dissaving as a share of fullemployment GNP indeed increased by 2.5 percentage points between 1960-81 and 1982-86. Still, rising deficits can account for only about half of the decline in the national saving rate between the two periods. The remainder is attributable to a roughly equal decline in the private saving rate. Much of that decline is in turn traceable to a fall in the personal saving rate. Low personal and private saving rates are especially striking given the widespread hope that the tax incentives enacted in 1981 would increase personal and private saving. The economic effects of the low U. S. saving rate depend on the ability of the United States to sustain large capital inflows from abroad. Over the past several years, more than half of net domestic investment has

International Evidence on Sticky Consumption Growth

This paper estimates the degree of stickiness in aggregate consumption growth (sometimes interpreted as reflecting consumption habits) for thirteen advanced economies. We find that after controlling for measurement error, consumption growth has a high degree of autocorrelation, with a stickiness parameter of about 0.7 on average across countries. The sticky consumption growth model outperforms the random walk model of Hall (1978) and typically fits the data better than the popular Mankiw (1989) model, though in a few countries, the sticky consumption growth and Campbell-Mankiw models work about equally well.