Saving Rate Dynamics in the Neoclassical Growth Model — Hyperbolic Discounting and Observational Equivalence
AbstractThe standard neoclassical growth model with Cobb-Douglas production predicts a mono- tonically declining saving rate, when reasonably calibrated. Ample empirical evidence, however, shows that the transition path of a countrys saving rate exhibits a rising or non- monotonic pattern. In important cases, hyperbolic discounting, which is empirically strongly supported, implies transitional dynamics of the saving rate that accords well with empirical evidence. This holds true even in a growth model with Cobb-Douglas production technology. We also identify those cases in which hyperbolic discounting is observation- ally equivalent to exponential discounting. In those cases, hyperbolic discounting does not affect the saving rate dynamics. Numerical simulations employing a generalized class of hyperbolic discounting functions that we term regular discounting functions support the results.
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Bibliographic InfoPaper provided by University of Graz, Department of Economics in its series Graz Economics Papers with number 2013-05.
Date of creation: Mar 2013
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Other versions of this item:
- Farzin, Y. Hossein & Wendner, Ronald, 2013. "Saving Rate Dynamics in the Neoclassical Growth Model – Hyperbolic Discounting and Observational Equivalence," MPRA Paper 45518, University Library of Munich, Germany.
- Y. Hossein Farzin & Ronald Wendner, 2013. "Saving Rate Dynamics in the Neoclassical Growth Model – Hyperbolic Discounting and Observational Equivalence," Working Papers 2013.42, Fondazione Eni Enrico Mattei.
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-06 (All new papers)
- NEP-DGE-2013-04-06 (Dynamic General Equilibrium)
- NEP-FDG-2013-04-06 (Financial Development & Growth)
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