Essays in Life Cycle Economies

The second essay deals with one of the stylized facts in the literature on savings. Among the oldest reported facts about savings behavior in cross section data, is that the fraction of income saved by households is increasing in household income. Furthermore, the differences in saving rates can be of considerable magnitude. For instance, the data compiled in Kuznets (1953) and Projector (1968), showed that households with incomes below one half of the mean income generally dissave, whereas households with incomes at or above two times the mean income save about twenty percent of their income. Given this, this essay is centered around two questions: What are the economic forces that contribute to explain this observation? Can calibrated general equilibrium model economies display stationary equilibrium saving rates that are increasing in household income? In answering the first of the posed questions, it is shown that the key forces behind the savings observations are the age structure of households (demographics), large permanent differences in labor earnings, and a social security system with similar attributes to the one that actually prevails in the U.S. It is also found, surprisingly, that temporary earnings shocks are not essential in generating the cross sectional saving facts. In terms of the second question, it is quantitatively demonstrated that life cycle economies with heterogeneous agents are successful in reproducing the saving observations. Moreover, simple life cycle models that do not account for agent heterogeneity, cannot generate the wide array of saving rates at different income levels that is displayed in U.S. cross section data. (Abstract shortened by UMI.).

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Economics

Grantor

University of Illinois at Urbana-Champaign

Date dc:date

10000-01-01

Author dc:creator

• Ventura, Gustavo Jaime

Contributors dc:contributor

• Mark Huggett

• Economics, General

Language dc:language

eng

Identifier

(MiAaPQ)AAI9737280

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/85616