Saving and Growth with Habit Formation

Christopher Carroll (), Jody Robert Overland () and David Weil ()

American Economic Review, 2000, vol. 90, issue 3, pages 341-355

Abstract: Saving and growth are strongly positively correlated across countries. Recent empirical evidence suggests that this correlation holds largely because high growth leads to high saving, not the other way around. This evidence is difficult to reconcile with standard growth models, since forward-looking consumers with standard utility should save less in a fast-growing economy because they know they will be richer in the future than they are today. We show that if utility depends partly on how consumption compares to a "habit stock" determined by past consumption, an otherwise-standard growth model can imply that increases in growth can cause increased saving.

Date: 2000
View list of references View citations in EconPapers

Downloads: (external link)
http://www.e-aer.org/archive/9003/90030341.pdf (application/pdf)
Access to full text is restricted to AEA members.

Related works:
Working Paper: Saving and growth with habit formation (1995)
Software Item: Mathematica code for 'Saving and Growth with Habit Formation' and 'Comparison Utility in a Growth Model'
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:aea:aecrev:v:90:y:2000:i:3:p:341-355

Ordering information: This journal article can be ordered from
http://www.aeaweb.org/subscribe.html

Access Statistics for this article

American Economic Review is edited by Robert Moffitt

More articles in American Economic Review from American Economic Association
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().