Liquidity Constraints and Precautionary Saving

Liquidity Constraints and Precautionary Saving

The LiqConstr directory contains code to reproduce the figures of the paper Liquidity Constraints and Precautionary Saving by Carroll, Holm, and Kimball, and the LaTeX source to produce the paper once the figures have been created.

References

Carroll, C. D., Holm, M. B., & Kimball, M. S. (2021). Liquidity constraints and precautionary saving. Journal of Economic Theory, 195, 105276.

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Authors

Abstract

We provide the analytical explanation of strong interactions between precautionary sav- ing and liquidity constraints that are regularly observed in numerical solutions to consump- tion/saving models. The effects of constraints and of uncertainty spring from the same cause: concavification of the consumption function, which can be induced either by constraints or by uncertainty. Concavification propagates back to consumption functions in prior periods. But, surprisingly, once a linear consumption function has been concavified by the presence of either risks or constraints, the introduction of additional concavifiers in a given period can reduce the precautionary motive in earlier periods at some levels of wealth.

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How to Execute this Notebook (with conda)

Install miniconda on your computer

  1. Open a Terminal (MacOS) or the Anaconda Prompt (Windows)
  2. At a command line, change the working directory to the one where you want to install
    • On MacOS/unix, if you install in the /tmp directory, the repo will disappear at reboot:
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  3. git clone https://github.com/econ-ark/LiqConstr --recursive
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  6. conda run --prefix ./condaenv pip install jupyterlab
  7. conda run --prefix ./condaenv jupyter-lab

Metadata

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Key Value
cff-version 1.1.0
message This paper shows that liquidity constraints and precautionary saving are closely related to each other, since both can be thought of is "counterclockwise concavifications" of the consumption function.; all results are paired with illustrative numerical solutions.
authors {"family-names"=>"Carroll", "given-names"=>"Christopher D.", "orcid"=>"https://orcid.org/0000-0003-3732-9312"}
{"family-names"=>"Kimball", "given-names"=>"Miles S."}
{"family-names"=>"Holm", "given-names"=>"Martin B."}
abstract We provide the analytical explanation of strong interactions between precautionary sav- ing and liquidity constraints that are regularly observed in numerical solutions to consump- tion/saving models. The effects of constraints and of uncertainty spring from the same cause: concavification of the consumption function, which can be induced either by constraints or by uncertainty. Concavification propagates back to consumption functions in prior periods. But, surprisingly, once a linear consumption function has been concavified by the presence of either risks or constraints, the introduction of additional concavifiers in a given period can reduce the precautionary motive in earlier periods at some levels of wealth.
date-released
remark-version 1.0
references {"type"=>"article", "authors"=>[{"family-names"=>"Carroll", "given-names"=>"Christopher D.", "orcid"=>"https://orcid.org/0000-0003-3732-9312"}, {"family-names"=>"Kimball", "given-names"=>"Miles S."}, {"family-names"=>"Holm", "given-names"=>"Martin B."}], "title"=>"Liquidity Constraints and Precautionary Savings", "doi"=>"https://doi.org/10.1016/j.jet.2021.105276", "date"=>"2021-07", "publisher"=>"Journal of Economic Theory"}
github_repo_url https://github.com/econ-ark/LiqConstr
remark-name LiqConstr
notebooks LiqConstr.ipynb
dashboards LiqConstr-Dashboard.ipynb
tags REMARK
Reproduction
keywords liquidity constraints
uncertainty
precautionary saving
date