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Life-Cycles, Dynasties, Savings: Implications for Closed and Small, Open Economies


  • Mr. Hamid Faruqee
  • Mr. Douglas Laxton


This paper examines the macroeconomic implications of life-cycle and dynastic saving behavior for closed and small, open economies. Using an extended version of Blanchard’s overlapping agents model, the analytical framework nests these two competing views, treating agents as either dynastic households or disconnected generations. Calibrating the life-cycle variant using empirical age-earnings profiles, the analysis compares the long-run effects of fiscal policy shocks under both perspectives. The results quantify the implications of life-cycle considerations for the effects of deficit finance on real interest rates and the capital stock or net foreign assets.

Suggested Citation

  • Mr. Hamid Faruqee & Mr. Douglas Laxton, 2000. "Life-Cycles, Dynasties, Savings: Implications for Closed and Small, Open Economies," IMF Working Papers 2000/126, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2000/126

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    Cited by:

    1. Mr. Dennis P Botman & Mr. Manmohan S. Kumar, 2006. "Fundamental Determinants of the Effects of Fiscal Policy," IMF Working Papers 2006/072, International Monetary Fund.
    2. Hamid Faruqee, 2003. "Debt, Deficits, and Age-specific Mortality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 300-312, April.
    3. Robert H. Dugger & Angel Ubide, 2004. "Structural Traps, Politics and Monetary Policy," International Finance, Wiley Blackwell, vol. 7(1), pages 85-116, March.
    4. Ganelli, Giovanni & Lane, Philip R., 2002. "Dynamic General Equilibrium Analysis: The Open Economy Dimension," CEPR Discussion Papers 3540, C.E.P.R. Discussion Papers.
    5. Philip R. Lane & Gian Maria Milesi-Ferretti, 2002. "Long-Term Capital Movements," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 73-136, National Bureau of Economic Research, Inc.
    6. Alessandro Girardi & Paolo Paesani, 2008. "The Transfer Problem in the Euro Area," Open Economies Review, Springer, vol. 19(4), pages 517-537, September.
    7. Mr. Hamid Faruqee & Ms. Natalia T. Tamirisa, 2006. "Macroeconomic Effects and Policy Challenges of Population Aging," IMF Working Papers 2006/095, International Monetary Fund.
    8. Faruqee, Hamid & Muhleisen, Martin, 2003. "Population aging in Japan: demographic shock and fiscal sustainability," Japan and the World Economy, Elsevier, vol. 15(2), pages 185-210, April.
    9. Mr. Dennis P Botman & Mr. Dirk V Muir & Mr. Andrei Romanov & Mr. Douglas Laxton, 2006. "A New-Open-Economy Macro Model for Fiscal Policy Evaluation," IMF Working Papers 2006/045, International Monetary Fund.
    10. Jaromír Hurník, 2004. "Fiscal Consolidation in General Equilibrium Framework (the case of the Czech Republic)," Prague Economic Papers, Prague University of Economics and Business, vol. 2004(2), pages 142-158.
    11. Ms. Dora M Iakova, 2007. "The Macroeconomic Effects of Migration from the New European Union Member States to the United Kingdom," IMF Working Papers 2007/061, International Monetary Fund.
    12. Nicoletta Batini & Mr. Tim Callen & Warwick J. McKibbin, 2006. "The Global Impact of Demographic Change," IMF Working Papers 2006/009, International Monetary Fund.
    13. Mr. Hamid Faruqee, 2002. "Population Aging and its Macroeconomic Implications: A Framework for Analysis," IMF Working Papers 2002/016, International Monetary Fund.


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