The Saving-Investment Nexus: Why it Matters and How it Works
AbstractThe causal relation between saving and investment has momentous implications for fiscal policy. If saving causes investment, this lends support for policies of fiscal austerity. Neither the national income accounts nor economic theory can resolve issues of causality. This paper presents a VAR analysis that examines the saving - investment relation. The principal findings are that investment spending is negatively impacted by personal saving and independent of government saving. Increases in personal saving have a negative effect on government saving. These patterns are consistent with the Keynesian paradox of thrift.
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Bibliographic InfoPaper provided by Schwartz Center for Economic Policy Analysis (SCEPA), The New School in its series SCEPA Working Papers with number 1996-01.
Length: 28 pages
Date of creation: 1996
Date of revision:
saving; investment; fiscal policy; paradox of thrift;
Find related papers by JEL classification:
- E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- H6 - Public Economics - - National Budget, Deficit, and Debt
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