The Savings Multiplier

Halvor Mehlum, Ragnar Torvik and Simone Valente.

Photo: Elsevier

Published in:

Journal of Monetary Economics, volume 83, pp. 90-105, October 2016.

DOI: 10.1016/j.jmoneco.2016.08.009

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.

 

Published Feb. 24, 2017 11:17 AM - Last modified Nov. 20, 2017 2:38 PM