A Relative Answer to the Growth-Saving Puzzle

Noam Gruber

MPRA Paper from University Library of Munich, Germany

Abstract: Prolonged rapid growth, i.e. a "catching-up" process, is known to be accompanied by high rates of household saving. This phenomenon is central in explaining the direction of international capital flows and trade imbalances in the past several decades, yet it is very much in contradiction to prevailing macroeconomic theory. This paper finds that a standard life-cycle model, even when integrated with uncertainty about future growth and credit constraints, is completely unable to replicate the relations between growth and saving as seen in the data. However, adding utility from relative consumption to the model allows for the full replication of these relations.

Keywords: Life Cycle; Saving Growth; Open Economy Growth; Household Saving; Life Cycle Models and Saving; Relative Income Hypothesis (search for similar items in EconPapers)
JEL-codes: D91 E21 F43 O11 (search for similar items in EconPapers)
Date: 2020-10-06
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-mac, nep-ore and nep-upt
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Related works:
Journal Article: A relative answer to the growth–saving puzzle (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:103349

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