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Target Saving In An Overlapping Generations Model

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Author Info

  • Ashok S. Guha

    ()
    (Indian Statistical Institute, India)

  • Brishti Guha

    ()
    (School of Economics, Singapore Management University)

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    Abstract

    We examine a model in which the utility function has been engineered so that it is optimal for consumers to aim for a fixed target level of retirement resources. In this case consumption displays excess sensitivity to current income as well as perfect old age insurance. In an overlapping generations model, this leads naturally to multiple and unstable equilibria. Under static expectations, it also leads to a well-defined dynamics, including possible historical traps, implosions involving ever-diminishing capital stock and ever-increasing interest rates, and the feasibility of optimal one-time interventions.

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    File URL: https://mercury.smu.edu.sg/rsrchpubupload/10934/target.pdf
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    Bibliographic Info

    Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 01-2008.

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    Length: 20 pages
    Date of creation: Jan 2008
    Date of revision:
    Publication status: Published in SMU Economics and Statistics Working Paper Series
    Handle: RePEc:siu:wpaper:01-2008

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    Related research

    Keywords: Targets; history; excess sensitivity; static expectations; rational expectations; uniqueness.;

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