Target Saving In An Overlapping Generations Model

Ashok S. Guha () and Brishti Guha ()
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Ashok S. Guha: Indian Statistical Institute, India
Brishti Guha: School of Economics, Singapore Management University

No 01-2008, Working Papers from Singapore Management University, School of Economics

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.

Keywords: Targets; history; excess sensitivity; static expectations; rational expectations; uniqueness. (search for similar items in EconPapers)
JEL-codes: E21 D91 (search for similar items in EconPapers)
Date: 2008-01
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Published in SMU Economics and Statistics Working Paper Series

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