The savings multiplier

Halvor Mehlum, Ragnar Torvik, Simone Valente

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)
6 Downloads (Pure)

Abstract

A theory of macroeconomic development based on the novel concept of savings multiplier is developed. Capital accumulation changes relative prices, amplifying incentives to save as the economy grows. The savings multiplier hinges on two mechanisms. First, accumulation raises wages and leads to redistribution from the consuming old to the saving young. Second, higher wages raise the price of old-age care and, in anticipation of this, the young save more. Our theory captures important aspects of China’s development and suggests new channels through which the one child policy and the dismantling of social benefits have fueled China’s savings rates.
Original languageEnglish
Pages (from-to)90-105
Number of pages16
JournalJournal of Monetary Economics
Volume83
Early online date9 Sep 2016
DOIs
Publication statusPublished - Oct 2016

Keywords

  • Intertemporal choices
  • China's savings puzzle
  • Overlapping generations

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