Explaining World Savings
Author(s) Colin Caines and Amartya Lahiri


Data on the world saving distribution reveals that saving rates are signi cantly different across countries and remain different for long periods of time. This paper provides an explanation for these sustained differences in observed savings. We formalize a model of the world economy comprised of open economies inhabited by heterogeneous agents endowed with recursive preferences. Our assumed preferences imply increasing marginal impatience of agents as their consumption rises relative to average world consumption. Using measured productivity and scal shocks as exogenous drivers, we show that the model can not only reproduce the sustained long run differences in average saving rates across countries, but also provides a good  t of the time series behavior of saving observed in the data between 1970 and 2010.

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