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THE VARIABLE RATE‐OF‐GROWTH EFFECT IN THE LIFE‐CYCLE SAVING MODEL
Author(s) -
FRY MAXWELL J.,
MASON ANDREW
Publication year - 1982
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1982.tb00359.x
Subject(s) - economics , variable (mathematics) , econometrics , growth model , keynesian economics , mathematics , mathematical analysis
The rate of growth in real GNP g affects the aggregate saving rate positively in life‐cycle saving models. This rate of growth effect is invariably estimated as the coefficient of g in the saving function. We show that other determinants of the saving rate influence the rate of growth effect. In other words, the rate of growth effect is not constant. Specifically, the real rate of return on financial assets and the population dependency ratio determine the timing of saving over the life cycle and, hence, alter the rate of growth effect. The dependency ratio also has an effect on the saving rate which is independent of g because it, together with the foreign saving rate, determines the level of saving over the life cycle.