Inflation and savings: testing Deaton's hypothesis |
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| Authors: | Erkki Koskela Matti Virén |
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| Institution: | Department of Economics , University of Helsinki, Helsinki and The Research Institute of the Finnish Economy , Helsinki , Finland |
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| Abstract: | A ‘money illusion’ savings function in which unanticipated inflation affects the savings ratio positively is tested. This is strongly supported by Finnish data. Goodness-of-fit statistics are quite high and the coefficient estimates are of the expected sign and are highly significant. Standard stability tests of both the Brown-Durbin-Evans type and of the VPR type are generally rather favourable. Finally, cross-country evidence from ten OECD countries gives further support for the suggested specification. |
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