Aggregate Savings When Individual Income Varies ∗

  title={Aggregate Savings When Individual Income Varies ∗},
  author={Martin Flod{\'e}n},
  • Martin Flodén
  • Published 2005
This paper examines aggregate savings in a general equilibrium model where infinitely lived households face volatile (and possibly uncertain) income paths, hold a risk-free asset, and face a liquidity constraint. I first show that the equilibrium capital stock in an economy without uncertainty, but where individual income varies, can be larger than in an economy where each household’s income is constant. When income is stochastic, the equilibrium capital stock is always larger than when income… CONTINUE READING