Cherif, Reda and Hasanov, Fuad (2011): The volatility trap: why do big savers invest relatively little?
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The more a country saves, the less it invests as a share of saving. We build a “store-or-sow” model of growth with precautionary saving and investment to study the nonlinear relationship between investment and saving. We contend that income volatility is an important variable for explaining saving and investment dynamics. Our results indicate that as permanent volatility increases, both investment and saving increase until a threshold at which point investment plummets while precautionary saving surges. In contrast, with larger volatility of temporary shocks, investment falls and precautionary saving gradually increases. Faced with high permanent volatility, big savers invest relatively little.
|Item Type:||MPRA Paper|
|Original Title:||The volatility trap: why do big savers invest relatively little?|
|Keywords:||volatility, precautionary saving, buffer-stock, investment|
|Subjects:||E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth
O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General
|Depositing User:||Fuad Hasanov|
|Date Deposited:||05. Jun 2011 23:36|
|Last Modified:||02. Jan 2016 16:10|
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