Interest Elasticity in a Life-Cycle Model with Precautionary Savings

2001 ◽  
Vol 91 (2) ◽  
pp. 418-421 ◽  
Author(s):  
Marco Cagetti
Keyword(s):  
Life Cycle ◽  
Precautionary Savings ◽  
Life Cycle Model ◽  
Cycle Model

Can Tax Rebates Stimulate Consumption Spending in a Life-Cycle Model?

2014 ◽  
Vol 6 (1) ◽  
pp. 162-189 ◽  
Author(s):  
Jonathan Huntley ◽  
Valentina Michelangeli
Keyword(s):  
Life Cycle ◽  
Portfolio Choice ◽  
Precautionary Savings ◽  
Financial Assets ◽  
Life Cycle Model ◽  
Cycle Model ◽  
Marginal Propensity To Consume ◽  
Tax Returns ◽  
Marginal Propensity ◽  
Earnings Risk

We build a life-cycle model with earnings risk, liquidity constraints, and portfolio choice over tax-deferred and taxable assets to evaluate how household consumption changes in response to shocks to transitory anticipated income, such as the 2001 income tax rebate. Households optimally invest in tax-deferred assets, which are encumbered by withdrawal penalties, and exchange taxable precautionary savings for higher after-tax returns. The model predicts a higher marginal propensity to consume out of a rebate than is predicted by a standard frictionless life-cycle model. Liquidity-constrained households—with few financial assets or portfolios expensive to reallocate—consume a higher fraction of the rebates. (JEL D91, E21, G11, H24)

The life-cycle model and intertemporal choice

2018 ◽  
Author(s):  
Hans Fehr ◽  
Fabian Kindermann
Keyword(s):  
Life Cycle ◽  
Old Age ◽  
Portfolio Choice ◽  
Intertemporal Choice ◽  
Precautionary Savings ◽  
Life Cycle Model ◽  
Cycle Model ◽  
Risky Assets ◽  
Labour Income ◽  
Uncertain Future

The discussion in the Chapters 3 and 4 centred around static optimization problems.The static general equilibrium model of Chapter 3 features an exogenous capital stock and Chapter 4 discusses investment decisions with risky assets, but in a static context. In this chapter we take a first step towards the analysis of dynamic problems. We introduce the life-cycle model and analyse the intertemporal choice of consumption and individual savings. We start with discussing the most basic version of this model and then introduce labour-income uncertainty to explain different motives for saving. In later sections, we extended the model by considering alternative savings vehicles and explain portfolio choice and annuity demand. Throughout this chapter we follow a partial equilibrium approach, so that factor prices for capital and labour are specified exogenously and not determined endogenously as in Chapter 3. This section assumes that households can only save in one asset. Since we abstract from bequest motives in this chapter, households do save because they need resources to consume in old age or because they want to provide a buffer stock in case of uncertain future outcomes.The first motive is the so-called old-age savings motive while the second is the precautionary savings motive. In order to derive savings decisions it is assumed in the following that a household lives for three periods. In the first two periods the agent works and receives labour income w while in the last period the agent lives from his accumulated previous savings. In order to derive the optimal asset structure a2 and a3 (i.e. the optimal savings), the agent maximizes the utility function . . . U(c1, c2, c3) = u(c1) + βu(c2) + β2u(c3) . . . where β denotes a time discount factor and u(c) = c1−1/γ /1−1/γ describes the preference function with γ ≥ 0 measuring the intertemporal elasticity of substitution.

scholarly journals Intergenerational Transfers and Savings

1988 ◽  
Vol 2 (2) ◽  
pp. 41-58 ◽  
Author(s):  
Laurence J Kotlikoff
Keyword(s):  
Life Cycle ◽  
Dominant Role ◽  
Intergenerational Transfers ◽  
Policy Implications ◽  
Precautionary Savings ◽  
Wealth Accumulation ◽  
Life Cycle Model ◽  
Cycle Model ◽  
Distribution Of Wealth ◽  
Annuity Markets

What is the main explanation for savings? Is it primarily accumulation for retirement as claimed by Albert Ando, Richard Brumberg, and Franco Modigliani in their celebrated Life Cycle Model of Savings? Is it primarily intentional accumulation for intergenerational transfers? Or is it primarily precautionary savings, much of which may be bequeathed because of imperfections in annuity markets? The answer to the savings puzzle has many policy implications and is key to understanding the distribution of wealth. A major piece of the puzzle is the quantitative importance of intergenerational transfers to the accumulation of wealth. As I will argue there is strong evidence that intergenerational transfers play a very important and perhaps dominant role in U.S. wealth accumulation. This does not mean, however, that intentional saving for gifts and bequests is the main motive for savings. Significant intergenerational transfers could also arise in the Life Cycle Model in the absence of well-functioning private annuity markets or close substitutes for such markets. In such a setting, bequests would be involuntary and potentially quite sizeable. Let us first look at the evidence on the importance of intergenerational transfers and then turn to the deeper question of why such transfers arise.

Company life cycle model: The influence of interior and exterior factors

2020 ◽  
Author(s):  
Oleg Malafeyev ◽  
Irina Zaitseva ◽  
Sergey Sychev ◽  
Gennady Badin ◽  
Ilya Pavlov ◽  
...  
Keyword(s):  
Life Cycle ◽  
Life Cycle Model ◽  
Cycle Model

A Life-Cycle Model for Career Teachers

2001 ◽  
Vol 38 (1) ◽  
pp. 16-19 ◽  
Author(s):  
Betty E. Steffy ◽  
Michael P. Wolfe
Keyword(s):  
Life Cycle ◽  
Life Cycle Model ◽  
Cycle Model ◽  
Career Teachers
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