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Demographic Patterns and Household Saving in China

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  • Steven Lugauer

    (University of Notre Dame)

  • Nelson C. Mark

    (University of Notre Dame and NBER)

  • Chadwick R. Curtis

    (University of Notre Dame)

Abstract

This paper studies the effect that changing demographic patterns have had on the house- hold saving rate in China. We undertake a quantitative investigation using an overlapping generations (OLG) model where agents live for 85 years. Consumers begin to exercise deci- sion making when they are 18. From age 18 to 60, they work and raise children. Dependent children’s utility enter into parent’s utility where parents choose the consumption level of the young until they leave the household. Working agents give a portion of their labor income to their retired parents and save for their own retirement while the aged live on their accumulated assets and support from their children. Remaining assets are bequeathed to the living upon death We parameterize the model and take future demographic changes, labor income and interest rates as exogenously given from the data. We then run the model from 1963 to 2009 and find that the model accounts for nearly all the observed increase in the household saving rate.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 529.

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Date of creation: 2011
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Handle: RePEc:red:sed011:529

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References

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  1. Henry Siu & Nir Jaimovich, 2006. "The Young, the Old, and the Restless: Demographics and Business Cycle Volatility," 2006 Meeting Papers, Society for Economic Dynamics 815, Society for Economic Dynamics.
  2. Selo Imrohoroglu & Kaiji Chen & Ayse Imrohoroglu, 2005. "Japanese Saving Rate," 2005 Meeting Papers, Society for Economic Dynamics 747, Society for Economic Dynamics.
  3. Horag Choi & Nelson C. Mark & Donggyu Sul, 2007. "Endogenous Discounting, the World Saving Glut and the U.S. Current Account," NBER Working Papers 13571, National Bureau of Economic Research, Inc.
  4. Charles Yuji Horioka & Akiko Terada-Hagiwara, 2011. "The Determinants and Long-term Projections of Saving Rates in Developing Asia," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0821, Institute of Social and Economic Research, Osaka University.
  5. Horag Choi & Nelson C. Mark, 2009. "Trending Current Accounts," NBER Working Papers 15244, National Bureau of Economic Research, Inc.
  6. Charles Yuji Horioka, 2010. "Aging And Saving In Asia," Pacific Economic Review, Wiley Blackwell, Wiley Blackwell, vol. 15(1), pages 46-55, 02.
  7. Marcos Chamon & Kai Liu & Eswar S. Prasad, 2010. "Income Uncertainty and Household Savings in China," NBER Working Papers 16565, National Bureau of Economic Research, Inc.
  8. Shang-Jin Wei & Xiaobo Zhang, 2011. "The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 119(3), pages 511 - 564.
  9. Chang-Tai Hsieh & Peter J Klenow, 2008. "Misallocation and Manufacturing TFP in China and India," 2008 Meeting Papers 121, Society for Economic Dynamics.
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  11. Ludwig, Alexander & Krüger, Dirk, 2006. "On the Consequences of Demographic Change for Rates of Returns to Capital, and the Distribution of Wealth and Welfare," Sonderforschungsbereich 504 Publications, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim 07-11, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  12. Marcos D. Chamon & Eswar S. Prasad, 2010. "Why Are Saving Rates of Urban Households in China Rising?," American Economic Journal: Macroeconomics, American Economic Association, American Economic Association, vol. 2(1), pages 93-130, January.
  13. Charles Yuji Horioka & Junmin Wan, 2006. "The Determinants of Household Saving in China: A Dynamic Panel Analysis of Provincial Data," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0676, Institute of Social and Economic Research, Osaka University, revised Sep 2007.
  14. Steven Lugauer, 2012. "Estimating the Effect of the Age Distribution on Cyclical Output Volatility Across the United States," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 896-902, November.
  15. Hans Fehr & Sabine Jokisch & Laurence J. Kotlikoff, 2007. "Will China Eat Our Lunch or Take Us to Dinner? Simulating the Transition Paths of the United States, the European Union, Japan, and China," NBER Chapters, National Bureau of Economic Research, Inc, in: Fiscal Policy and Management in East Asia, NBER-EASE, Volume 16, pages 133-193 National Bureau of Economic Research, Inc.
  16. Franco Modigliani & Shi Larry Cao, 2004. "The Chinese Saving Puzzle and the Life-Cycle Hypothesis," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 42(1), pages 145-170, March.
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Cited by:
  1. Vincenzo Quadrini, 2013. "Imbalances and Policies," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 9(2), pages 89-100, June.
  2. Sánchez-Romero, Miguel & Sambt, Jože & Prskawetz, Alexia, 2012. "Quantifying the role of alternative pension reforms on the Austrian economy," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 04/2012, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
  3. Yao, Yang, 2014. "The Chinese Growth Miracle," Handbook of Economic Growth, Elsevier, in: Handbook of Economic Growth, edition 1, volume 2, chapter 7, pages 943-1031 Elsevier.
  4. Keyu Jin & Stéphane Guibaud & Nicolas Coeurdacier, 2011. "Credit constraints and growth in a global economy," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 35706, London School of Economics and Political Science, LSE Library.
  5. Lugauer, Steven & Redmond, Michael, 2012. "The age distribution and business cycle volatility: International evidence," Economics Letters, Elsevier, Elsevier, vol. 117(3), pages 694-696.
  6. Keyu Jin & Nicolas Coeurdacier, 2013. "The One-Child Policy and Household Savings in China," 2013 Meeting Papers, Society for Economic Dynamics 790, Society for Economic Dynamics.
  7. J. Laurenceson & C.J. O’Donnell, 2011. "New Estimates and a Decomposition of Provincial Productivity Change in China," CEPA Working Papers Series WP042011, School of Economics, University of Queensland, Australia.
  8. Nelson Mark & Steven Lugauer & Clayton Sadler, 2012. "The Role of Household Saving in the Economic Rise of China," Working Papers 004, University of Notre Dame, Department of Economics, revised Jun 2012.
  9. Miguel Sánchez-Romero, 2013. "The role of demography on per capita output growth and saving rates," Journal of Population Economics, Springer, Springer, vol. 26(4), pages 1347-1377, October.
  10. Samuel Cudré, 2014. "Capital’s long march west: saving and investment frictions in Chinese regions," ECON - Working Papers, Department of Economics - University of Zurich 161, Department of Economics - University of Zurich.
  11. Il Houng Lee & Xu Qingjun & Murtaza H. Syed, 2013. "China’s Demography and its Implications," IMF Working Papers 13/82, International Monetary Fund.
  12. Steven Lugauer, 2012. "The Supply of Skills in the Labor Force and Aggregate Output Volatility," Working Papers 005, University of Notre Dame, Department of Economics, revised Jun 2012.

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