Arbeitspapier

Saving Rate Dynamics in the Neoclassical Growth Model: Hyperbolic Discounting and Observational Equivalence

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 path of a country’s saving rate exhibits a rising or non-monotonic pattern. In important cases, hyperbolic discounting, which is empirically strongly supported, implies transitional dynamics of the saving rate that accords well with empirical evidence. This holds true even in a growth model with Cobb-Douglas production technology. We also identify the cases where hyperbolic discounting is observationally equivalent to exponential discounting. In those cases, hyperbolic discounting does not affect the saving rate dynamics. Numerical simulations employing a generalized class of hyperbolic discounting functions that we term regular discounting functions support the results.

Language
Englisch

Bibliographic citation
Series: Nota di Lavoro ; No. 42.2013

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
Non-Monotonic Transition Path
Hyperbolic Discounting
Regular Discounting
Commitment
Short Planning Horizon
Neoclassical Growth Model

Event
Geistige Schöpfung
(who)
Farzin, Y. Hossein
Wendner, Ronald
Event
Veröffentlichung
(who)
Fondazione Eni Enrico Mattei (FEEM)
(where)
Milano
(when)
2013

Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Farzin, Y. Hossein
  • Wendner, Ronald
  • Fondazione Eni Enrico Mattei (FEEM)

Time of origin

  • 2013

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