01762cas a2200253 a 4500 AALejournalIMF011882 230101c9999 xx r poo 0 0eng d 5.00 USD 9781475503869 1018-5941 BD-DhAAL BD-DhAAL Cherif, Reda. The Volatility Trap : Precautionary Saving, Investment, and Aggregate Risk / Reda Cherif, Fuad Hasanov. Washington, D.C. : International Monetary Fund, 2012. 1 online resource (21 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students We study the effects of permanent and temporary income shocks on precautionary saving and investment in a "store-or-sow" model of growth. High volatility of permanent shocks results in high precautionary saving in the safe asset and low investment, or a "volatility trap." Namely, big savers invest relatively little. In contrast, low volatility of permanent shocks leads to low precautionary saving and high or low investment, depending on the volatility of temporary shocks. Empirical evidence shows a nonlinear relationship between investment and saving and that investment is a hump-shaped function of the volatility of permanent shocks, as predicted by the model. Mode of access: Internet Hasanov, Fuad. IMF Working Papers; Working Paper ; No. 2012/134 Full text available on IMF http://elibrary.imf.org/view/journals/001/2012/134/001.2012.issue-134-en.xml IMF e-Library