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

Recent Declines in the Savings Rate 139
12 different OECD countries for the period 1969 to 1986. His variables are the
same or analogous to ours, except for not allowing for the possibility of consumption
out of the inflation correction, and for the inclusion of a time trend
which unfortunately turns out to be high (and negative) for a number of countries.
This is disturbing, for a trend is a non-explanation.
Income growth is highly significant, generally the most significant (except possibly
for trend), with but one exception, though the coefficient is typically smaller
than in table 4.1 (range 1.5 to 0.5). The estimated effects of government surplus
are consistent in the two studies and therefore reject pure Barro in favor of a
partial Barro effect. 3 The interest rate was included for the eight larger countries.
For the four countries with the highest t-ratios, 2 have positive and 2 negative
coefficients. For the remaining countries, 3 are positive and one negative, but
none are significant. On the whole, these results do not make a strong case for a
clear positive effect.
In the case of inflation, his estimated effect on saving is prevailingly positive
(in 9 cases out of 12), and the coefficients are pretty stable across countries
(around 0.3). This is contrary to our results, which however are not reliable
enough to offer a challenge to the time series estimates.
Notes
1. See Leff, Nathaniel H.: “Dependency Rates and Savings Rates”, American Economic Review, Vol.
LIX, 1969, pp. 886–96.
2. See Ram R, “Dependency Rates and Aggregate Savings: A New International Cross-Section
Study”, American Economic Review, n. 72, 1982, pp. 537–44.
3. There is only one country for which the deficit effect is estimated to be quite large—Italy, with a
coefficient of -0.67 (t-ratio = 4). But in a detailed study of that country (Modigliani [13]) I found
that the effect was quite small, no more than -0.19.
Bibliography
1. Aghevli, B., Boughton, James M., Montiel, Peter J., Villanueva, Delano, and Woglom, Geoffrey,
“The Role of National Saving in the World Economy,” Washington (DC), International Monetary
Fund, Occasional Paper, no. 67, 1990.
2. Altonji, J., Hayashi, F., and Kotlikoff L., “Is the Extended Family Altruistically Linked?”, NBER,
Working Paper, no. 3046, 1989.
3. Ando, A. and Modigliani, F., “The Life Cycle Hypothesis of Saving—Aggregate Implications of
Tests”, American Economic Review, vol. 1, no. 53, 1963.
4. Barro, R.J., “Are Government Bonds Net Wealth?”, Journal of Political Economy, no. 82, November–December
1974.
5. Bosworth, B., The Global Decline in Saving: Some International Comparisons, Washington (DC),
Brookings Institution, 1990.
6. Fisher, Irving, The Theory of Interest, New York, Macmillan, 1930.