Precautionary saving and the Laursen-Metzler effect

Article Abstract:

A current account deficit is the likely result of a worsening in a country's terms of trade, if consumers are in the habit of saving to bolster themselves as a precaution against unexpected drops in their income. This is known as the Laursen-Metzler effect, and the study assumed a particular form type of utility function. However, the results could also relate to a wider range of functions. Worsening terms of trade cut the real income of a country, and also reduce its variability, which means less is needed in saving as a precautionary measure.

EXECUTIVE, LEGISLATIVE, AND GENERAL, Terms of trade

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Estimating saving-investment correlations: evidence for OECD countries based on an error correction model

Article Abstract:

Saving-investment correlations are important stylized facts in open-economy macroeconomics that are best estimated by an Error Correction Model (ECM). Applying the ECM to OECD countries, cointegration has been found between general saving and investment. This supports the assumption that nations follow intertemporal budget limits. Evidence of a large country effect and a rise in capital mobility within the OECD have also been discovered.

Evaluation, Investments, Organization for Economic Cooperation and Development

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Buffer stocks and precautionary savings with loss aversion

Article Abstract:

It was shown that the concavity of the marginal utility continues to ascertain precautionary saving, but its impact is of second order magnitude as opposed to the first order effect prompted by loss aversion. It was established that a stabilization fund that is comparatively small when agents are maximizing the traditional expected utility, turns out to be slightly large with loss aversion.

Administration of General Economic Programs, Economic Planning & Research, Research, Economic conditions, Buffer stocks

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