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Interest elasticity in a life-cycle model with precautionary savings

Опубликовано на портале: 15-12-2002
American Economic Review. 2001.  Vol. 91. No. 2. P. 418-421. 
This paper examines the question of whether households adjust savings in response to interest rates in a life-cycle model with precautionary savings, where both motives for saving (retirement and precautionary) are present. While uncertainty may be the most important motive for younger households, eventually, households will start saving for retirement as well. By how much the wealth of the median household at retirement changes after an exogenous permanent increase in the after-tax interest rate is computed. In an estimated life-cycle model with precautionary savings, the elasticity of savings is also very low. However, the results are sensitive to the utility parameters.
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