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Explaining World Savings

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Saving rates are significantly different across countries and remain different for long periods of time. This paper provides an explanation for this phenomenon. We formalize a model of a world economy comprised of open economies inhabited by heterogeneous agents endowed with recursive preferences. Our assumed preferences imply increasing marginal impatience of agents as their consumption rises relative to average consumption of a reference group. Using measured productivity as the sole exogenous driver, we show that the model can not only reproduce the sustained long run differences in average saving rates across countries, but also provides a good fit to the time series behavior of saving observed in the data.

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  • Colin C. Caines & Amartya Lahiri, 2025. "Explaining World Savings," International Finance Discussion Papers 1416, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:1416
    DOI: 10.17016/IFDP.2025.1416
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    File URL: https://www.federalreserve.gov/econres/ifdp/files/ifdp1416.pdf
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    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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