"Life Cycle" Hypothesis of Saving: Aggregate ... - Arabictrader.com

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Introduction
decades of the twentieth century. It shows that the LCH can successfully account
for the decline in the saving rate experienced in the OECD countries during that
period of time. The fifth essay, “The Age-Saving Profile and the Life-Cycle
Hypothesis,” written with Tullio Jappelli, addresses the empirical observation that
dissaving by the elderly is limited or absent, a fact contrary to the mechanism
beneath the LCH. It shows that measures of saving generally used in previous
tests are based on a measure of income that does not properly account for the
role of mandated public pension arrangements. It is shown that when correctly
adjusted, saving and wealth exhibit the characteristic hump shape over the lifecycle
that is implied by the LCH. The sixth essay, “The Chinese Saving Puzzle
and the Life Cycle Hypothesis,” written with Larry Cao, is the last published
work of Franco Modigliani. The essay uses the LCH paradigm to explain the
large increase in private saving experienced in China in the last two decades of
the twentieth century.
The second section of the volume includes Franco Modigliani’s work on the
European economy during the last decade of the twentieth century. The first essay,
“An Economists’ Manifesto on Unemployment in the European Union,” written
with a plethora of fellow economists, addresses the high level of unemployment
that has gripped Europe in the 1980s and 1990s. The manifesto suggests actions
aimed at the revival of aggregate demand (demand policies), as well as the reform
of the labor and product markets and the system of benefits for the unemployed
(supply policies). The salient aspect is the complementary of demand and supply
policies. The main focus of the second essay, “The Shameful Rate of Unemployment
in the EMS: Causes and Cures,” contains a lesson Franco Modigliani
taught his students for 50 years: high long-term interest rates resulting from an
insufficient supply of real money, combined with too-tight fiscal policy, give rise
to insufficient aggregate demand, and therefore an insufficient number of jobs.
The author identifies the Maastricht fixed exchange rate regime as the cause
of the contractionary monetary stance in Europe. Two popular essays originally
published in the Financial Times conclude part II.
Part III is really a collection of topics. The first essay, “Long-term Financing
in an Inflationary Environment,” is a reflection on inflation and the problems
which arise with mortgages in the in the presence of inflation. The second essay,
“Risk-Adjusted Performance: How to Measure it and Why,” written with
Modigliani’s granddaughter Leah Modigliani, proposes a new measure for risk
to evaluate performance of financial portfolios. The measure is now known as
the M 2 measure and has been adopted by many institutions to evaluate mutual
funds. The third essay, “The Rules of the Game and the Development of Security
Markets,” written with Enrico Perotti, attempts to characterize the underdeveloped
institutional (legal) framework prevalent in many developing countries,