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Macroeconomics Commons

Open Access. Powered by Scholars. Published by Universities.®

2008

Static expectations

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Full-Text Articles in Macroeconomics

Target Saving In An Overlapping Generations Model, Brishti Guha, Ashok S. Guha Mar 2008

Target Saving In An Overlapping Generations Model, Brishti Guha, Ashok S. Guha

Research Collection School Of Economics

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.


Target Saving In An Overlapping Generations Model, Ashok S. Guha, Brishti Guha Jan 2008

Target Saving In An Overlapping Generations Model, Ashok S. Guha, Brishti Guha

Research Collection School Of Economics

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.