Life-Cycles, Dynasties, Savings: Implications for Closed and Small, Open Economies

Hamid Faruqee and Douglas Laxton

No 2000/126, IMF Working Papers from International Monetary Fund

Abstract: This paper examines the macroeconomic implications of life-cycle and dynastic saving behavior for closed and small, open economies. Using an extended version of Blanchard’s overlapping agents model, the analytical framework nests these two competing views, treating agents as either dynastic households or disconnected generations. Calibrating the life-cycle variant using empirical age-earnings profiles, the analysis compares the long-run effects of fiscal policy shocks under both perspectives. The results quantify the implications of life-cycle considerations for the effects of deficit finance on real interest rates and the capital stock or net foreign assets.

Keywords: WP; open economy; real interest rate; Ricardian Equivalence; Government Debt; Saving; life-cycle income; income profile; labor income; gross investment; interest income; age-earnings profile; asset income; profile choose; earnings profile; closed economy variant; asset income of the household; debt build-up; Income; Consumption; Real interest rates; Global (search for similar items in EconPapers)
Pages: 40
Date: 2000-07-01
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Citations: View citations in EconPapers (20)

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