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Target Saving In An Overlapping Generations Model

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  • Ashok S. Guha

    (SMU)

  • Brishti Guha

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

  • Ashok S. Guha & Brishti Guha, 2008. "Target Saving In An Overlapping Generations Model," Macroeconomics Working Papers 22433, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:macroe:22433
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    References listed on IDEAS

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    1. Kiminori Matsuyama, 1991. "Increasing Returns, Industrialization, and Indeterminacy of Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 617-650.
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    9. Koichi Futagami & Shingo Ishiguro, 2004. "Signal-extracting education in an overlapping generations model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(1), pages 129-146, July.
    10. Glomm, Gerhard & Ravikumar, B., 1996. "Endogenous public policy and multiple equilibria," European Journal of Political Economy, Elsevier, vol. 11(4), pages 653-662, April.
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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

    Targets; 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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