Explaining World Savings

Colin Caines and Amartya Lahiri

No 1416, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Saving rates are significantly different across countries and remain different for long periods of time. This paper provides an explanation for this phenomenon. We formalize a model of a world economy comprised of open economies inhabited by heterogeneous agents endowed with recursive preferences. Our assumed preferences imply increasing marginal impatience of agents as their consumption rises relative to average consumption of a reference group. Using measured productivity as the sole exogenous driver, we show that the model can not only reproduce the sustained long run differences in average saving rates across countries, but also provides a good fit to the time series behavior of saving observed in the data.

Keywords: World savings; Recursive preferences (search for similar items in EconPapers)
JEL-codes: E20 F30 F40 (search for similar items in EconPapers)
Date: 2025-08-22
New Economics Papers: this item is included in nep-dge and nep-fdg
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https://www.federalreserve.gov/econres/ifdp/files/ifdp1416.pdf (application/pdf)

Related works:
Working Paper: Explaining World Savings (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1416

DOI: 10.17016/IFDP.2025.1416

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