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Demographic Patterns and Household Saving in China

  • Steven Lugauer

    ()

    (Department of Economics, University of Notre Dame)

  • Nelson Mark

    ()

    (Department of Economics, University of Notre Dame)

This paper studies how changing demographics can explain much of the evolution of China's household saving rate from 1955 to 2009. We undertake a quantitative investigation using an overlapping generations model in which agents live for 85 years. Agents begin to exercise decision making when they are 20. From age 20 to 63, they work. From age 20 to 49, they also provide for children. Dependent children's consumption enters into the parent's utility, and parents choose the consumption level of the young until they leave the household. Working agents transfer a portion of their labor income to their retired parents and save for their own retirement. Retirees live of of their accumulated assets and support from current workers. We present agents in the parameterized model with the future time-path of the demographics, interest rates and wages as given by the data and analyze their saving decisions. The simulated model accounts for nearly all the observed increase in the household saving rate from 1955 to 2009.

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File URL: http://www3.nd.edu/~tjohns20/RePEc/deendus/wpaper/006_saving.pdf
File Function: First version, 2010
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Paper provided by University of Notre Dame, Department of Economics in its series Working Papers with number 007.

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Length: 32 pages
Date of creation: Dec 2010
Date of revision: Jun 2012
Handle: RePEc:nod:wpaper:006
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  1. Marcos Chamon & Eswar Prasad, 2008. "Why are Saving Rates of Urban Households in China Rising?," NBER Working Papers 14546, National Bureau of Economic Research, Inc.
  2. Alexander Ludwig & Dirk Krüger, 2006. "On the Consequences of Demographic Change for Rates of Returns to Capital, and the Distribution of Wealth and Welfare," MEA discussion paper series 06103, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  3. Charles Yuji Horioka & Akiko Terada-Hagiwara, 2011. "The Determinants and Long-term Projections of Saving Rates in Developing Asia," ISER Discussion Paper 0821, Institute of Social and Economic Research, Osaka University.
  4. Rodolfo E. Manuelli & Ananth Seshadri, 2009. "Explaining International Fertility Differences," The Quarterly Journal of Economics, MIT Press, vol. 124(2), pages 771-807, May.
  5. Selo Imrohoroglu & Kaiji Chen & Ayse Imrohoroglu, 2005. "Japanese Saving Rate," 2005 Meeting Papers 747, Society for Economic Dynamics.
  6. Chamon, Marcos & Liu, Kai & Prasad, Eswar, 2013. "Income uncertainty and household savings in China," Journal of Development Economics, Elsevier, vol. 105(C), pages 164-177.
  7. Choi, Horag & Mark, Nelson C. & Sul, Donggyu, 2008. "Endogenous discounting, the world saving glut and the U.S. current account," Journal of International Economics, Elsevier, vol. 75(1), pages 30-53, May.
  8. Charles Yuji Horioka & Junmin Wan, 2006. "The Determinants of Household Saving in China: A Dynamic Panel Analysis of Provincial Data," NBER Working Papers 12723, National Bureau of Economic Research, Inc.
  9. Nir Jaimovich & Henry E. Siu, 2007. "The Young, the Old, and the Restless: Demographics and Business Cycle Volatility," Discussion Papers 07-010, Stanford Institute for Economic Policy Research.
  10. Charles Yuji Horioka, 2010. "Aging And Saving In Asia," Pacific Economic Review, Wiley Blackwell, vol. 15(1), pages 46-55, 02.
  11. Ferrero, Andrea, 2010. "A structural decomposition of the U.S. trade balance: Productivity, demographics and fiscal policy," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 478-490, May.
  12. Robert Shimer, 1999. "The Impact of Young Workers on the Aggregate Labor Market," NBER Working Papers 7306, National Bureau of Economic Research, Inc.
  13. Chang-Tai Hsieh & Peter J Klenow, 2008. "Misallocation and Manufacturing TFP in China and India," 2008 Meeting Papers 121, Society for Economic Dynamics.
  14. Guonan Ma & Wang Yi, 2010. "China's high saving rate: myth and reality," BIS Working Papers 312, Bank for International Settlements.
  15. Hans Fehr & Sabine Jokisch & Laurence J. Kotlikoff, 2007. "Will China Eat Our Lunch or Take Us to Dinner? Simulating the Transition Paths of the United States, the European Union, Japan, and China," NBER Chapters, in: Fiscal Policy and Management in East Asia, NBER-EASE, Volume 16, pages 133-193 National Bureau of Economic Research, Inc.
  16. Steven Lugauer, 2012. "Estimating the Effect of the Age Distribution on Cyclical Output Volatility Across the United States," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 896-902, November.
  17. Orazio P. Attanasio & Agar Brugiavini, 2003. "Social Security And Households' Saving," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 1075-1119, August.
  18. Shang-Jin Wei & Xiaobo Zhang, 2011. "The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 511 - 564.
  19. James Feyrer, 2007. "Demographics and Productivity," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 100-109, February.
  20. Franco Modigliani & Shi Larry Cao, 2004. "The Chinese Saving Puzzle and the Life-Cycle Hypothesis," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 145-170, March.
  21. Horag Choi & Nelson C. Mark, 2009. "Trending Current Accounts," NBER Working Papers 15244, National Bureau of Economic Research, Inc.
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