Arbeitspapier
The Time Path of the Saving Rate: Hyperbolic Discounting and Short-Term Planning
The standard neoclassical growth model with Cobb-Douglas production predicts a monotonically declining saving rate, when reasonably calibrated. Ample empirical evidence, however, shows that the transition paths of most countries saving rates exhibit a statistically significant hump-shaped pattern. Prior literature shows that CES production may imply a hump-shaped pattern of the saving rate (Goméz, 2008). However, the implied magnitude of the hump falls short of what is seen in empirical data. We introduce two non-standard features of preferences into a neoclassical growth model with CES production: hyperbolic discounting and short planning horizons. We show that, in contrast to the commonly accepted argument, in general (except for the special case of logarithmic utility) a model with hyperbolic discounting is not observationally equivalent to one with exponential discounting. We also show that our framework implies a hump-shaped saving rate dynamics that is consistent with empirical evidence. Hyperbolic discounting turns out to be a major factor explaining the magnitude of the hump of the saving rate path. Numerical simulations employing a generalized class of hyperbolic discount functions, which we term regular discount functions, support the results.
- Language
-
Englisch
- Bibliographic citation
-
Series: Nota di Lavoro ; No. 63.2014
- Classification
-
Wirtschaft
Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡
Macroeconomics: Consumption; Saving; Wealth
Economic Growth and Aggregate Productivity: General
- Subject
-
Saving Rate Dynamics
Non-Monotonic Transition Path
Hyperbolic Discounting
Regular Discounting
Short-Term Planning
Neoclassical Growth Model
- Event
-
Geistige Schöpfung
- (who)
-
Farzin, Y. Hossein
Wendner, Ronald
- Event
-
Veröffentlichung
- (who)
-
Fondazione Eni Enrico Mattei (FEEM)
- (where)
-
Milano
- (when)
-
2014
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Farzin, Y. Hossein
- Wendner, Ronald
- Fondazione Eni Enrico Mattei (FEEM)
Time of origin
- 2014