The Macroeconomic Effects of Excess Savings

Abstract: We study the consequences of shocks to the household wealth distribution in dynamic general equilibrium by characterizing the rate at which excess wealth is depleted. Analytical results link the aggregate decumulation rate to the distribution of the additional balances, micro intertemporal marginal propensities to consume, and general equilibrium feedback. A quantitative heterogeneous agent New Keynesian model matches the depletion path of the excess savings built up during the COVID-19 pandemic across the income distribution. The model predicts a substantial but steadily waning boost to consumption and explains about 40 percent of the surge in inflation observed in 2020 and 2021.

Speaker: Andreas Tischbirek , Principal Economist at the Federal Reserve

Location: online or at Kiel Institute for the World Economy, Chausseestraße 111, 10115 Berlin

Organizers: Kiel Institute for the World Economy, CEPR

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