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Explaining World Savings

Author

Listed:
  • Colin Caines

    (Division of International Finance, Board of Governors of the Federal Reserve System)

  • Amartya Lahiri

    (Centre for Advanced Financial Research and Learning (CAFRAL))

Abstract

Data on the world saving distribution reveals that saving rates are signicantly different across countries and remain different for long periods of time. This paper provides an explanation for these sustained differences in observed savings. We formalize a model of the 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 world consumption. Using measured productivity and scal shocks as exogenous drivers, 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 t of the time series behavior of saving observed in the data between 1970 and 2010.

Suggested Citation

  • Colin Caines & Amartya Lahiri, 2017. "Explaining World Savings," Working Papers 022317, Centre for Advanced Financial Research and Learning (CAFRAL).
    • Handle: RePEc:ris:cafral:022317
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    File URL: https://www.cafral.org.in/sfControl/content/Speech/116201743438PMSaving.pdf
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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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