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Saving and growth: a reinterpretation

  • Carroll, Christopher D.
  • Weil, David N.

We examine the relationship between income growth and saving using both cross-country and household data. At the aggregate level, we find that growth Granger causes saving, but that saving does not Granger cause growth. Using household data, we find that households with predictably higher income growth save more than households with predictably low growth. We argue that standard Permanent Income models of consumption cannot explain these findings, but that a model of consumption with habit formation may. The positive effect of growth on saving implies that previous estimates of the effect of saving on growth may be overstated.

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Article provided by Elsevier in its journal Carnegie-Rochester Conference Series on Public Policy.

Volume (Year): 40 (1994)
Issue (Month): 1 (June)
Pages: 133-192

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Handle: RePEc:eee:crcspp:v:40:y:1994:i::p:133-192
Contact details of provider: Web page: http://www.elsevier.com/locate/jme

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  1. Nelson, C. & Startz, R., 1988. "The Distribution Of The Instrumental Variables Estimator And Its T-Ratio When The Instrument Is A Poor One," Discussion Papers in Economics at the University of Washington 88-07, Department of Economics at the University of Washington.
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  21. repec:fth:harver:1475 is not listed on IDEAS
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