Economics, Econometrics and Finance
8 years ago

Cyclical idiosyncratic risk spikes lead to major consumption declines.

Journal of Monetary Economics
Time-varying idiosyncratic risk and aggregate consumption dynamics
Alisdair McKay

Paper Summary

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The article shows that when individuals face more uncertainty about their future earnings, they tend to save more money as a precaution. This leads to higher fluctuations in overall spending in the economy. During the Great Recession, people became more worried about their income, causing a big drop in overall spending.