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Saving behavior in low- and middle-income developing countries

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  • Reinhart, Carmen
  • Ogaki, Masao
  • Ostry, Jonathan

Abstract

The impact of changes in real interest rates on saving and growth is a central issue in development economics. According to one familiar view, a financial liberalization program which increases real interest rates should encourage saving, thereby boosting investment and growth. While such liberalizations have indeed typically succeeded in raising real interest rates, their impact on private saving has been mixed. This paper uses macroeconomic data for a sample of countries with diverse income levels to estimate a model in which the intertemporal elasticity of substitution varies with the level of wealth. The estimated parameters are then used ta calculate, in the context of a simple endogenous growth model, the responsiveness of saving to real interest xate changes for countries at differing stages of development.

Suggested Citation

  • Reinhart, Carmen & Ogaki, Masao & Ostry, Jonathan, 1995. "Saving behavior in low- and middle-income developing countries," MPRA Paper 13757, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:13757
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    More about this item

    Keywords

    consumption subsistence low income real interest rates liberalization;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • D1 - Microeconomics - - Household Behavior

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