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Piggy banks: financial intermediaries as a commitment to save

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Abstract

Savers with uncertain life spans cannot stick to long-term investment plans when they invest directly in liquid assets. Before horizons are known, all savers will plan to roll over their short-term assets if returns turn out high. Ex post, the short-term investors will consume their liquid assets rather than reinvest them. Delegating investment decisions to an intermediary reduces the commitment problem, and leads to more efficient portfolios. The higher return to savings should also increase savings rates.

Suggested Citation

  • Donald P. Morgan & Katherine A. Samolyk, 1998. "Piggy banks: financial intermediaries as a commitment to save," Staff Reports 50, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:50
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    Cited by:

    1. James J. McAndrews & William Roberds, 1999. "Payment intermediation and the origins of banking," Staff Reports 85, Federal Reserve Bank of New York.

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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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