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Piggy banks: financial intermediaries as a commitment to save

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Author Info

  • Donald P. Morgan
  • Katherine A. Samolyk

Abstract

Savers with uncertain life spans cannot stick to long-term investment plans when they invest directly in liquid assets. Before horizons are known, all savers will plan to roll over their short-term assets if returns turn out high. Ex post, the short-term investors will consume their liquid assets rather than reinvest them. Delegating investment decisions to an intermediary reduces the commitment problem, and leads to more efficient portfolios. The higher return to savings should also increase savings rates.

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File URL: http://www.newyorkfed.org/research/staff_reports/sr50.html
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File URL: http://www.newyorkfed.org/research/staff_reports/sr50.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 50.

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Date of creation: 1998
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Handle: RePEc:fip:fednsr:50

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Related research

Keywords: Saving and investment;

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Cited by:
  1. James McAndrews & William Roberds, 1999. "Payment intermediation and the origins of banking," Working Paper 99-11, Federal Reserve Bank of Atlanta.

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