The impact of changes in real interest rates on saving and growth is a central issue in development economics. According to one familiar view, a financial liberalization program which increases real interest rates should encourage saving, thereby boosting investment and growth. While such liberalizations have indeed typically succeeded in raising real interest rates, their impact on private saving has been mixed. This paper uses macroeconomic data for a sample of countries with diverse income levels to estimate a model in which the intertemporal elasticity of substitution varies with the level of wealth. The estimated parameters are then used ta calculate, in the context of a simple endogenous growth model, the responsiveness of saving to real interest xate changes for countries at differing stages of development.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
13757.
Length: Date of creation: Jan 1995 Date of revision: Publication status: Published in IMF Staff Papers 1.43(1996): pp. 38-71 Handle: RePEc:pra:mprapa:13757
Find related papers by JEL classification: D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook D1 - Microeconomics - - Household Behavior
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