The vanishing savings motive |
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Authors: | Christian Keuschnigg |
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Institution: | (1) Present address: Institute for Advanced Studies and CEPR, Stumpergasse 56, A-1060 Vienna, Austria |
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Abstract: | The overlapping generations model with life-time uncertainty is capable of generating unfamiliar, nonmonotonic adjustment phenomena that are attributed to a transitory savings motive. Slowly falling (increasing) wages create transitory savings (dis-)incentives which vanish in the long run when wage profiles become stationary again. Such a transitory savings component comes on top of a base component created by the permanently operating long-run savings incentives, and it easily gives rise to overshooting adjustment. Assets and consumption may even move first in a direction opposite to the implied long-run changes. |
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