Savings and Inflation: Theory and British Evidence

Angus Deaton

Chapter 5 in The Determinants of National Saving and Wealth, 1983, pp 125-139 from Palgrave Macmillan

Abstract: Abstract British data, like those of other western countries, show unprecedently high savings ratios for much of the 1970s. While it is clear that treating asset erosion as negative income changes this picture, it does not restore any simple relationship between consumption and real income. In theory, it is wealth not income which determines consumption, and the paper shows that the standard life cycle model predicts a positive effect of unanticipated inflation on the savings rate. It is thus fully consistent with the disequilibrium savings story of the author’s earlier work. The analysis does not however support the inclusion of real liquid assets in conventional consumption functions.

Keywords: Real Interest Rate; Consumption Function; Liquid Asset; Saving Ratio; Life Cycle Theory (search for similar items in EconPapers)
Date: 1983
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DOI: 10.1007/978-1-349-17028-9_5

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