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Target Saving In An Overlapping Generations Model

Author

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  • Ashok S. Guha

    (Indian Statistical Institute, India)

  • Brishti Guha

    (School of Economics, Singapore Management University)

Abstract

We examine a model in which the utility function has been engineered so that it is optimal for consumers to aim for a fixed target level of retirement resources. In this case consumption displays excess sensitivity to current income as well as perfect old age insurance. In an overlapping generations model, this leads naturally to multiple and unstable equilibria. Under static expectations, it also leads to a well-defined dynamics, including possible historical traps, implosions involving ever-diminishing capital stock and ever-increasing interest rates, and the feasibility of optimal one-time interventions.

Suggested Citation

  • Ashok S. Guha & Brishti Guha, 2008. "Target Saving In An Overlapping Generations Model," Working Papers 01-2008, Singapore Management University, School of Economics.
  • Handle: RePEc:siu:wpaper:01-2008
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    References listed on IDEAS

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    1. Boldrin, Michele, 1992. "Dynamic externalities, multiple equilibria, and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 198-218, December.
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    6. Manisha Chakrabarty & Anke Schmalenbach, 2002. "The Effect of Current Income on Aggregate Consumption," The Economic and Social Review, Economic and Social Studies, vol. 33(3), pages 297-317.
    7. Adsera, Alicia & Ray, Debraj, 1998. "History and Coordination Failure," Journal of Economic Growth, Springer, vol. 3(3), pages 267-276, September.
    8. Samwick, Andrew A., 1998. "Tax Reform and Target Saving," National Tax Journal, National Tax Association;National Tax Journal, vol. 51(3), pages 621-635, September.
    9. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
    10. Costas Azariadis & Luisa Lambertini, 2003. "Endogenous Debt Constraints in Lifecycle Economies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(3), pages 461-487.
    11. Palivos, Theodore, 2001. "Social norms, fertility and economic development," Journal of Economic Dynamics and Control, Elsevier, vol. 25(12), pages 1919-1934, December.
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    Cited by:

    1. Brishti Guha & Ashok Guha, 2008. "Utility functions, future consumption targets and subsistence thresholds," Economics Bulletin, AccessEcon, vol. 4(30), pages 1-4.
    2. repec:ebl:ecbull:v:4:y:2008:i:30:p:1-4 is not listed on IDEAS

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    More about this item

    Keywords

    Targets; history; excess sensitivity; static expectations; rational expectations; uniqueness.;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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