[lionhearted]

Quick take on a first skim and thinking:

1. Looks interesting. Worthwhile type of thinking.

2. Control+F "savings" / "saving" ... no results. You'd think that the amount and distribution of savings in a population would greatly effect the outcomes.

That said, "elasticity" showed up 14 times in a control+f of the paper so it might be implicitly covered or named differently.

Edit: "reserve" / "reserves" had no relevant mentions (1x "rights reserved", 2x in citations of Federal Reserve), capital 0 mentions, "insurance" 14 mentions, "ability" 0 mentions, "willing" / "unwilling" / "willingness" 1 mention total, "substitute" / "substitution" 19 mentions, "bankrupt" / "bankruptcy" 0 mentions, "unemployment" 11 mentions, "funds" 0 mention, "cash" 0 mentions, "money" only 1 mention (!)... "monetary" shows up 20 times though.

Edit2: Lots of "utility function" going on. I personally don't really love the theoretical grounding of utility functions but it might actually produce interesting insights in this case.

Edit3: "Each agent is endowed with n > 0 units of labor which are supplied inelastically" - inelasticity of units of labor in this case seems like a pretty aggressive assumption. They carry that assumption through - "As before, agents inelastically supply labor n to their respective sector in the flexible price equilibrium; they may supply less than n in the equilibrium with wage rigidities. For now, we assume that workers are perfectly specialized in their sector."

Quite theoretical with a fair amount of simplifying assumptions to make it simpler to mathematically model. The conclusions are rather tentative and not strongly stated, in any event. Interesting line of thinking, I think you'd have to look closely at the assumptions and premises and how variables are defined to see if it corresponds well to real life.

[jmalicki]

Savings is implied through extensive discussion of marginal propensities to consume (MPC) - the fraction of additional income that a person will NOT save.

[lionhearted]

That's right, yeah.

But here's what they're investigating:

> ”In this paper, we introduce a concept that might be accurately portrayed as “supply creates its own excess demand”. Namely, a negative supply shock can trigger a demand shortage that leads to a contraction in output and employment larger than the supply shock itself."

They've got some time variables; I think an explicit savings variable (and maybe credit, too) would be important in determining whether that'd happen.

I might be mistaken, I tossed some quick thoughts up when this had zero comments, looking at methodology and assumptions moreso than conclusions. But you'd think regions with high-savings, low-savings but lots of credit, and low-savings combined with low credit would behave very differently towards "a contraction in output and employment larger than the supply shock itself."

Math gets way more complicated as you addd variables like that, though, and maybe it wouldn't effect the conclusions too much though, so... ¯\_(ツ)_/¯

[jmalicki]

Also see section 5.4. They use the word liquidity rather than saving - it's not being obtuse, just highly technical vocabulary.

" What happens if firms are liquidity constrained? If firms have some finite amount of liquidity at their disposal, say, because they cannot borrow nor issue equity and have limited past accumulated profits at their disposal, then they no longer maximize the present value of profits in an unconstrained fashion. This distorts firm decisions towards laying workers off, since the current period loss cannot be financed."

[pyromine]

Determining information about Marginal Propensity to Consume directly implies information about Marginal Propensity to Save, as MPC + MPS = 1.