Life-Cycles, Dynasties, Savings: Implications for Closed and Small, Open Economies

IMF Working Papers, July 1, 2000

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Life-Cycles, Dynasties, Savings: Implications for Closed and Small, Open Economies

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Bibliographic details

• Authors: Hamid Faruqee, Douglas Laxton
• Published: July 1, 2000
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451854893.001

Summary and scope

• Examines the macroeconomic implications of life-cycle and dynastic saving behavior for closed and small, open economies.
• Compares two competing views of household behavior: dynastic households versus disconnected generations (life-cycle).
• Quantifies implications of life-cycle considerations for the effects of deficit finance on real interest rates and the capital stock or net foreign assets.

Methodology

• Uses an extended version of Blanchard’s overlapping agents model that nests both the dynastic and life-cycle perspectives.
• Calibrates the life-cycle variant using empirical age-earnings profiles.
• Compares long-run effects of fiscal policy shocks under both perspectives.

Comparative findings

• The analytical framework treats agents as either dynastic households or disconnected generations, allowing direct comparison of the two approaches.
• Calibration with empirical age-earnings profiles enables quantification of how life-cycle saving alters responses to deficit finance relative to the dynastic case.
• Results focus on the differential impacts on real interest rates and on the capital stock or net foreign assets across closed and small, open economy variants.

Implications for fiscal policy

• Provides quantified evidence on how life-cycle behavior affects the macroeconomic consequences of deficit finance.
• Highlights that life-cycle considerations materially influence the effects of fiscal policy shocks on:
  • real interest rates
  • the capital stock (closed economy)
  • net foreign assets (small, open economy)

Subjects and keywords (as stated in the source)

• Subject: Consumption, Financial services, Income, Labor, National accounts, Public debt, Real interest rates
• Keywords: age-earnings profile, asset income, asset income of the household, closed economy variant, Consumption, debt build-up, earnings profile, Global, Government Debt, gross investment, Income, income profile, interest income, labor income, life-cycle income, open economy, profile choose, real interest rate, Real interest rates, Ricardian Equivalence, Saving, WP

Hamid Faruqee and Douglas Laxton, July 1, 2000. IMF Working Paper No. 2000/126. DOI: https://doi.org/10.5089/9781451854893.001

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• Life-Cycles, Dynasties, Saving: Implications for Closed and Small, Open Economies - WP/00/126
  • Life-Cycles, Dynasties, Saving: Implications for Closed and Small, Open Economies - WP/00/126 (Markdown version)
  • Life-Cycles, Dynasties, Saving: Implications for Closed and Small, Open Economies - WP/00/126 (PDF)