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The effect of pension wealth on private savings. Results from an extended life cycle model

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Abstract

An extended life cycle model is used to investigate how variation in the level of expected pensions influences non-pension wealth accumulation. We try to explain why the offset effects between pension wealth and private savings are not one to one by accounting for different risks and market imperfections, which includes uninsured risk on earnings, mortality risk, borrowing constraints and bequest motive. The model is calibrated on Norwegian household data from 1992 to 2005. Based on the calibrated model, simulations are performed to explore consequences of introducing these factors. The result shows that by simply accounting these risks and constraints, we can explain most of the departure between empirical findings and theoretical prediction.

Suggested Citation

  • Zhiyang Jia & Weizhen Zhu, 2012. "The effect of pension wealth on private savings. Results from an extended life cycle model," Discussion Papers 697, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:697
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    File URL: https://www.ssb.no/a/publikasjoner/pdf/DP/dp697.pdf
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    1. Love, David, 2006. "Buffer stock saving in retirement accounts," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1473-1492, October.
    2. David Domeij & Paul Klein, 2002. "Private Pensions: To What Extent Do They Account for Swedish Wealth Inequality?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 503-534, July.
    3. Carroll, Christopher D., 2006. "The method of endogenous gridpoints for solving dynamic stochastic optimization problems," Economics Letters, Elsevier, vol. 91(3), pages 312-320, June.
    4. Flodén, Martin, 2008. "A note on the accuracy of Markov-chain approximations to highly persistent AR(1) processes," Economics Letters, Elsevier, vol. 99(3), pages 516-520, June.
    5. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, January.
    6. Rodepeter, Ralf & Winter, Joachim, 1998. "Savings decisions under life-time and earnings uncertainty:," Sonderforschungsbereich 504 Publications 98-58, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Imperfect substitution between pension wealth and savings
      by Economic Logician in Economic Logic on 2012-07-26 20:09:00
    2. [経済]年金と貯蓄が完全な代替とならない理由
      by himaginary in himaginaryの日記 on 2012-07-30 12:00:00

    More about this item

    Keywords

    Life cycle model; Offset effect; pension wealth; private savings;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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