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Shifts in US savings: long-run asset accumulation versus consumption smoothing

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  • Evan Tanner
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    Abstract

    Recently, savings rates have fluctuated considerably in the USA. The implications of these movements have interested both policy makers and economists. This paper considers two reasons why savings may change: (i) a change in the economy's desired long-run capital stock, and (ii) the economy's desire to smooth its consumption through time. To identify both kinds of movements in US savings, the permanent income hypothesis (PIH) is modified to incorporate discrete breaks. Evidence suggests that discrete breaks in saving occurred during 1972-74 and again during the mid 1980s. And, when breaks are accounted for, it is found that rises (falls) in saving anticipate falls (rises) in output, suggesting that people use savings to help smooth consumption over time, consistent with the PIH.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/000368497326381
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics.

    Volume (Year): 29 (1997)
    Issue (Month): 8 ()
    Pages: 989-999

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    Handle: RePEc:taf:applec:v:29:y:1997:i:8:p:989-999

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    Cited by:
    1. Evan Tanner & Yasser Abdih, 2009. "Frugality," IMF Working Papers 09/197, International Monetary Fund.
    2. Chris Elbers & Jan Willem Gunning & Lei Pan, 2007. "Insurance and Rural Welfare: What can Panel Data tell us?," Tinbergen Institute Discussion Papers 07-011/2, Tinbergen Institute.
    3. Chris Elbers & Jan Willem Gunning & Lei Pan, 2007. "Insurance and Rural Welfare: What can Panel Data tell us?," Tinbergen Institute Discussion Papers 07-011/2, Tinbergen Institute.

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