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Target Saving in an Overlapping Generations Model

Author

Listed:
  • Guha Brishti

    (Singapore Management University)

  • Guha Ashok S

    (Indian Statistical Institute)

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

  • Guha Brishti & Guha Ashok S, 2008. "Target Saving in an Overlapping Generations Model," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-26, March.
    • Handle: RePEc:bpj:bejmac:v:8:y:2008:i:1:n:14
    DOI: 10.2202/1935-1690.1541
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    References listed on IDEAS

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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

    target saving; 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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