Target Saving in an Overlapping Generations Model

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...

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Bibliographic Details
Main Authors: GUHA, Ashok S., GUHA, Brishti
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2008
Subjects:
Online Access:https://ink.library.smu.edu.sg/soe_research/1081
https://ink.library.smu.edu.sg/context/soe_research/article/2080/viewcontent/target.pdf
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Institution: Singapore Management University
Language: English
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Summary: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.