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Target Saving in an Overlapping Generations Model

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  • Guha Brishti

    ()
    (Singapore Management University)

  • Guha Ashok S

    ()
    (Indian Statistical Institute)

Abstract

We examine a model in which the utility function has been engineered so that it is optimal for consumers to aim for a fixed target level of retirement resources. In this case, consumption displays excess sensitivity to current income as well as perfect old age insurance. In an overlapping generations model, this leads naturally to multiple and unstable equilibria. Under static expectations, it also leads to a well-defined dynamics, including possible historical traps, implosions involving ever-diminishing capital stock and ever-increasing interest rates, and the feasibility of optimal one-time interventions.

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File URL: http://www.degruyter.com/view/j/bejm.2008.8.1/bejm.2008.8.1.1541/bejm.2008.8.1.1541.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 8 (2008)
Issue (Month): 1 (March)
Pages: 1-26

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Handle: RePEc:bpj:bejmac:v:8:y:2008:i:1:n:14

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  1. Adsera, Alicia & Ray, Debraj, 1998. " History and Coordination Failure," Journal of Economic Growth, Springer, vol. 3(3), pages 267-76, September.
  2. Manisha Chakrabarty & Anke Schmalenbach, 2002. "The Effect of Current Income on Aggregate Consumption," The Economic and Social Review, Economic and Social Studies, vol. 33(3), pages 297-317.
  3. Palivos, Theodore, 2001. "Social norms, fertility and economic development," Journal of Economic Dynamics and Control, Elsevier, vol. 25(12), pages 1919-1934, December.
  4. Costas Azariadis & Luisa Lambertini, 2003. "Endogenous Debt Constraints in Lifecycle Economies," Review of Economic Studies, Wiley Blackwell, vol. 70(3), pages 461-487, 07.
  5. Matsuyama, Kiminori, 1991. "Increasing Returns, Industrialization, and Indeterminacy of Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 617-50, May.
  6. Andrew A. Samwick, 1998. "Tax Reform and Target Savings," NBER Working Papers 6640, National Bureau of Economic Research, Inc.
  7. Koichi Futagami & Shingo Ishiguro, 2004. "Signal-extracting education in an overlapping generations model," Economic Theory, Springer, vol. 24(1), pages 129-146, 07.
  8. Glomm, Gerhard & Ravikumar, B., 1996. "Endogenous public policy and multiple equilibria," European Journal of Political Economy, Elsevier, vol. 11(4), pages 653-662, April.
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Cited by:
  1. Ashok Guha & Brishti Guha, 2008. "Utility functions, future consumption targets and subsistence thresholds," Microeconomics Working Papers 22431, East Asian Bureau of Economic Research.
  2. repec:ebl:ecbull:v:4:y:2008:i:30:p:1-4 is not listed on IDEAS

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