Publication Type

Journal Article

Version

publishedVersion

Publication Date

3-2008

Abstract

We examine a model in which the utility function has been engineered so that it is optimal for consumers to aim for a fixed target level of retirement resources. In this case, consumption displays excess sensitivity to current income as well as perfect old age insurance. In an overlapping generations model, this leads naturally to multiple and unstable equilibria. Under static expectations, it also leads to a well-defined dynamics, including possible historical traps, implosions involving ever-diminishing capital stock and ever-increasing interest rates, and the feasibility of optimal one-time interventions.

Keywords

target saving, history, excess sensitivity, static expectations, rational expectations, uniqueness

Discipline

Behavioral Economics | Macroeconomics

Research Areas

Macroeconomics

Publication

BE Journal of Macroeconomics

Volume

8

Issue

1

First Page

1

Last Page

26

ISSN

1935-1690

Identifier

10.2202/1935-1690.1541

Publisher

De Gruyter

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.2202/1935-1690.1541

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