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American Economic Review: Vol. 90 No. 3 (June 2000)
AER Volume. 90, Issue 3 | 
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Saving and Growth with Habit Formation
Article Citation
Carroll, Christopher D.,
Jody Overland, and
David N. Weil. 2000. "Saving and Growth with Habit Formation."
American Economic Review,
90(3): 341-355.
DOI: 10.1257/aer.90.3.341
DOI: 10.1257/aer.90.3.341
Abstract
Saving and growth are strongly positively correlated across countries. Recent empirical evidence suggests that this correlation holds largely because high growth leads to high saving, not the other way around. This evidence is difficult to reconcile with standard growth models, since forward-looking consumers with standard utility should save less in a fast-growing economy because they know they will be richer in the future than they are today. We show that if utility depends partly on how consumption compares to a "habit stock" determined by past consumption, an otherwise-standard growth model can imply that increases in growth can cause increased saving.
Article Full-Text Access
Full-text Article
Authors
Carroll, Christopher D. (Johns Hopkins U and NBER)
Overland, Jody (Unlisted)
Weil, David N. (Brown U and NBER)
Overland, Jody (Unlisted)
Weil, David N. (Brown U and NBER)
JEL Classifications
E21: Macroeconomics: Consumption; Saving; Wealth
O41: One, Two, and Multisector Growth Models
D91: Intertemporal Consumer Choice; Life Cycle Models and Saving
O41: One, Two, and Multisector Growth Models
D91: Intertemporal Consumer Choice; Life Cycle Models and Saving
