Hostname: page-component-cd9895bd7-7cvxr Total loading time: 0 Render date: 2024-12-28T16:44:33.439Z Has data issue: false hasContentIssue false
  • English
  • Français

MARKET POWER AND THE AGGREGATE SAVING RATE

Published online by Cambridge University Press:  15 February 2018

Andrea Giusto  and
Talan B. İşcan
Andrea Giusto*
Affiliation:
Dalhousie University
Talan B. İşcan
Affiliation:
Dalhousie University
*
Address correspondence to: Dr Andrea Giusto, Department of Economics, Dalhousie University, 6214 University Avenue, Halifax, P.O. Box 15000, NS, B3H 4R2, Canada; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

Can increasing market power cause a decrease in the aggregate savings? We answer this question by using a heterogeneous agents model that features both idiosyncratic labor and capital income risk. Under complete markets, the saving rate does not depend on the degree of market power, but when markets are incomplete, higher markups substantially reduce the aggregate saving rate. This is due to endogenous changes in the distribution of income and wealth. A calibration of the model using the observed changes in market power in the United States since the 1970s closely matches the decline in the US saving rate. Furthermore, when market power increases, the model generates distributional changes that are consistent with the data.

Keywords

Aggregate Saving RateMarket PowerIncomplete MarketsHeterogeneous Agents
Type
Articles
Information
Macroeconomic Dynamics , Volume 23 , Issue 6 , September 2019 , pp. 2269 - 2297
Copyright
Copyright © Cambridge University Press 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We thank seminar participants at Bates College, St. Francis Xavier University, Southern Methodist University, and the MED study group at Dalhousie for comments and suggestions. İşcan thanks Universidad Carlos III de Madrid for its hospitality during the early stages of this research. This research was not externally funded. The authors declare no competing financial interests.

References

REFERENCES

Aiyagari, Rao S. (1994) Uninsured idiosyncratic risk and aggregate saving. Quarterly Journal of Economics 109 (3), 659–684.Google Scholar
Alvarez-Cuadrado, Francisco and El-Attar, Mayssun (2012) Income Inequality and Saving. IZA Working paper no. 7083.Google Scholar
American Hospital Association (2015) AHA hospital statistics. http://www.aha.org.Google Scholar
Angeletos, George-Marios (2007) Uninsured idiosyncratic investment risk and aggregate saving. Review of Economic Dynamics 10, 1–30.Google Scholar
Banerjee, Ryan, Kearns, Jonathan, and Lombardi, Marco J. (2015) (Why) is investment weak? BIS Quarterly Review March, 67–82. http://www.bis.org/publ/qtrpdf/r_qt1503g.pdf.Google Scholar
Barkbu, Bergljot, Berkmen, Pelin, Lukyantsau, Pavel, Saksonovs, Sergejs, and Schoelermann, Hanni (2015) Investment in the Euro Area: Why Has It Been Weak? IMF working paper 15/32.Google Scholar
Basker, Emek (2007) The causes and consequences of Wal-Mart's growth. Journal of Economic Perspectives 21 (3), 177–198.Google Scholar
Berger, Allen N., Kashyap, Anil K., and Scalise, Joseph M. (1995) The transformation of the U.S. banking industry: What a long, strange trip it's been. Brookings Papers on Economic Activity 1995 (2), 54–219.Google Scholar
Bernanke, Ben S. (2005) The global saving glut and the U.S. current account deficit. Remarks at the Sandridge Lecture, Virginia Association of Economists, Richmond, Virginia.Google Scholar
Blanchard, Olivier Jean and Kiyotaki, Nobuhiro (1987) Monopolistic competition and the effects of aggregate demand. American Economic Review 77 (4), 647–666.Google Scholar
Blonigen, Bruce A. and Pierce, Justin R. (2016) Evidence for the Effects of Mergers on Market Power and Efficiency. NBER working paper no. 22750.Google Scholar
Boldrin, Michele and Levine, David K. (2013) The case against patents. Journal of Economic Perspectives 27 (1), 3–22.Google Scholar
Carroll, Christopher D. (1992) The buffer-stock theory of saving: Some macroeconomic evidence. Brookings Papers on Economic Activity 1992 (2), 61–156.Google Scholar
Carroll, Christopher D. (1997) Buffer stock saving and the life cycle/permanent income hypothesis. Quarterly Journal of Economics 112 (1), 1–56.Google Scholar
Carroll, Tom, Srikantiah, Ranjini, and Wolters, James (2000) Telecommunications industry structure in the future: Horizontal or vertical? MIT, http://web.mit.edu.Google Scholar
Commonwealth Fund (2015) Evaluating the impact of health insurance industry consolidation: Learning from experience. http://www.commonwealthfund.org/publications/.Google Scholar
Cooper, Russell W. and Haltiwanger, John C. (2006) On the nature of capital adjustment costs. Review of Economic Studies 73 (3), 611–633.Google Scholar
Council of Economic Advisors (2016) Benefits of competition and indicators of market power. Available at: https://www.whitehouse.gov/sites/default/files/page/files/20160414_cea_competition_issue_brief.pdf.Google Scholar
Covas, Francisco (2006) Uninsured idiosyncratic production risk with borrowing constraints. Journal of Economic Dynamics and Control 30 (11), 2167–2190.Google Scholar
Dafny, Leemore, Duggan, Mark, and Ramanarayanan, Subramaniam (2012) Paying a premium on your premium? Consolidation in the US health insurance industry. American Economic Review 102 (2), 1161–1185.Google Scholar
Decker, Ryan A, Haltiwanger, John, Jarmin, Ron S, and Miranda, Javier (2016) Where has all the skewness gone? The decline in high-growth (young) firms in the US. European Economic Review 86, 4–23.Google Scholar
Dixit, Avinash K. and Stiglitz, Joseph E. (1977) Monopolistic competition and optimal product diversity. American Economic Review 67, 297–308.Google Scholar
Epstein, Larry G. and Zin, Stanley E. (1989) Substitution, risk aversion, and the temporal behavior of consumption and asset returns: A theoretical framework. Econometrica 57 (4), 937–969, http://www.jstor.org/stable/1913778.Google Scholar
Evans, David (2014) Optimal Taxation with Persistent Idiosyncratic Investment Risk. NYU, mimeo.Google Scholar
Fernández-Villaverde, Jesús, Guerrón-Quintana, Pablo, Kuester, Keith, and Rubio-Ramírez, Juan (2015) Fiscal volatility shocks and economic activity. American Economic Review 105 (11), 3352–3384.Google Scholar
Gokhale, Jagadeesh, Kotlikoff, Laurence J., and Sabelhaus, John (1996) Understanding the postwar decline in U.S. saving: A cohort analysis. Brookings Papers on Economic Activity 1996 (1), 315–407.Google Scholar
Gottschalk, Peter and Moffitt, Robert (2009) The rising instability of U.S. earnings. Journal of Economic Perspectives 23 (4), 3–24.Google Scholar
Gutiérrez, Germaán and Philippon, Thomas (2016) Investment-Less Growth: An Empirical Investigation. NBER working paper no. 22897.Google Scholar
Hathaway, Ian and Litan, Robert E. (2014) Declining business dynamism in the United States: A look at states and metros. Economic Studies at Brookings, http://www.brookings.edu/research/.Google Scholar
Heathcote, Jonathan, Storesletten, Kjetil, and Violante, Giovanni L. (2009) Quantitative macroeconomics with heterogeneous households. Annual Review of Economics 1 (1), 319–354.Google Scholar
İşcan, Talan B. (2011) Productivity growth and the U.S. saving rate. Economic Modelling 28, 501–514.Google Scholar
Jones, Kenneth D. and Critchfield, Tim (2005) Consolidation in the U.S. banking industry: Is the “long, strange trip” about to end? Federal Deposit Insurance Corporation Banking Review 17 (4), 31–61.Google Scholar
Kimball, Miles S. (1989) The effect of demand uncertainty on a precommitted monopoly price. Economics Letters 30 (1), 1–5.Google Scholar
Koenig, David and Mayerowitz, Scott (2015) Consolidation of U.S. airline industry radically reducing competition. http://skift.com.Google Scholar
MacDonald, James M., Korb, Penni, and Hoppe, Robert A. (2013) Farm size and the organization of U.S. crop farming. ERR-152. U.S. Department of Agriculture, Economic Research Service.Google Scholar
McKay, Alisdair and Reis, Ricardo (2016) The role of automatic stabilizers in the U.S. business cycle. Econometrica 154, 126–161.Google Scholar
Mian, Atif R. and Sufi, Amir (2014a) House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent it from Happening Again. Chicago, IL: University of Chicago Press.Google Scholar
Mian, Atif R. and Sufi, Amir (2014b) House Price Gains and U.S. Household Spending from 2002 to 2006. Fama-Miller Working Paper; Chicago Booth Research Paper No. 14–23. http://dx.doi.org/10.2139/ssrn.2470036.Google Scholar
Moskowitz, Tobias and Vissing-Jorgensen, Annette (2002) The returns to entrepreneurial investment: A private equity premium puzzle? American Economic Review 92 (4), 745–778.Google Scholar
Nekarda, Christopher J. and Ramey, Valerie A. (2013) The Cyclical Behavior of the Price-Cost Markup. NBER working paper no. 19099.Google Scholar
Nirei, Makoto and Aoki, Shuhei (2016) Pareto distribution of income in neoclassical growth models. Review of Economic Dynamics 20, 25–42.Google Scholar
Nordhaus, William D. (2008) Baumol's diseases: A macroeconomic perspective. The B.E. Journal of Macroeconomics (Contributions) 8(1, Article 9).Google Scholar
Norrbin, Stefan C. (1993) The relation between price and marginal cost in us industry: A contradiction. Journal of political Economy 101 (6), 1149–1164.Google Scholar
Opp, Marcus M., Parlour, Christine A., and Walden, Johan (2014) Markup cycles, dynamic misallocation, and amplification. Journal of Economic Theory 154, 126–161.Google Scholar
Parker, Jonathan A. (2000) Spendthrift in America? On two decades of decline in the U.S. saving rate. NBER Macroeconomics Annual 1999 14, 317–370.Google Scholar
Piketty, Thomas (2014) Capital in the 21st Century. MA: Harvard University Press.Google Scholar
Pryor, Frederic L. (2001) New trends in U.S. industrial concentration. Review of Industrial Organization 18, 301–326.Google Scholar
Pryor, Frederic L. (2002) News from the monopoly front: Changes in industrial concentration, 1992–1997. Review of Industrial Organization 20, 183–185.Google Scholar
Rotemberg, Julio J. and Woodford, Michael (1992) Oligopolistic pricing and the effects of aggregate demand on economic activity. Journal of Political Economy 100 (6), 1153–1207.Google Scholar
Swan, William M. (2005) Consolidation in the airline industry. Sauder School of Business, UBC.Google Scholar
U.S. Department of Commerce, Bureau of Economic Analysis (2016) National income and product accounts. http://www.bea.gov.Google Scholar
Wang, Jun and Whalley, John (2014) Are Chinese Markets for Manufactured Products More Competitive than in the US? A Comparison of China–US Industrial Concentration Ratios. NBER working paper no. 19898.Google Scholar
Wolff, Edward N. (2012) The Asset Price Meltdown and the Wealth of the Middle Class. NBER working paper no. 18559.Google Scholar