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Target Saving In An Overlapping Generations Model

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  • Ashok S. Guha

    (SMU)

  • Brishti Guha

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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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 22433.

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Date of creation: Jan 2008
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Handle: RePEc:eab:macroe:22433

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Related research

Keywords: Targets; history; excess sensitivity; static expectations; Rational Expectations; uniqueness;

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References

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  1. 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.
  2. Samwick, Andrew A., 1998. "Tax Reform and Target Saving," National Tax Journal, National Tax Association, vol. 51(n. 3), pages 621-35, September.
  3. Costas Azariadis & Luisa Lambertini, 2003. "Endogenous Debt Constraints in Lifecycle Economies," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 461-487.
  4. Palivos, Theodore, 2001. "Social norms, fertility and economic development," Journal of Economic Dynamics and Control, Elsevier, vol. 25(12), pages 1919-1934, December.
  5. Kiminori Matsuyama, 1990. "Increasing Returns, Industrialization and Indeterminacy of Equilibrium," Discussion Papers 878, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Adsera, Alicia & Ray, Debraj, 1998. " History and Coordination Failure," Journal of Economic Growth, Springer, vol. 3(3), pages 267-76, September.
  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. repec:ebl:ecbull:v:4:y:2008:i:30:p:1-4 is not listed on IDEAS
  2. Ashok Guha & Brishti Guha, 2008. "Utility functions, future consumption targets and subsistence thresholds," Microeconomics Working Papers 22431, East Asian Bureau of Economic Research.

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