Keywords: Consumption, saving, interest elasticity
Abstract: Direct estimates of the interest elasticity of saving
suffer from several serious problems. As an alternative, this survey
uses an indirect approach that combines models of individual behavior
with estimates of certain features of individuals' preferences. The
paper examines the effect of interest-rate changes on the consumption
and saving of people who follow the lifecycle model, who plan to leave
bequests, who save to reach a fixed target, and who have short
planning horizons. The models that likely describe the behavior of
the people who account for most of aggregate saving imply positive
interest elasticities of saving.
Full paper (527 KB PDF)
| Full paper (884 KB Postscript)
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Last update: July 16, 1997