Download Saving, Growth and Liquidity Constrains by Jappelli and Pagano

Saving, Growth and Liquidity
Constrains
by Jappelli and Pagano
Paulina Armacińska
Ertem Ejder
Schedule:
1. Overrlapping-generations model
2. Indicators of liquidity constraints
3. Explanation of international differences in
saving rates
4. Relation between liquidity constraint and
growth rate
5. Implications for current policy issues
Overrlapping-generations model
I period
loan
II period
III period
income
savings
• Liquidity constrain:
– Young can borrow at most fraction of Φ of their
discounted lifetime income
Overrlapping-generations model
• Aggregate production function
• Exogenous growth
– Technological progress as a increasing funcion of time
– Growth does not depend on the availability of credit to
households
– Liquidity constrains rise aggregate savings
– Stronger effect of growth on savings in economy with
liquidity constraints
– Savings do not affect growth
Overrlapping-generations model
• Endogenous growth
– Technology is a function of aggregated capital
(technology displays IRS)
– An economy with liquidity constraints grow
faster
• Effects on welfare
– Forcing consumption of the young to be lower
– Raising their pernament income by fostering
capital accumulation
Indicators of liquidity constraints
• Regulations
• The cost of enforcing loan contracts
• The information on borrower’s
credithworthiness available to lender
Savings and liquidity constraints
• Panel of 19 OECD countires
• Averages of annual data for periods 196070, 1971-80 and 1981-90
Savings and liquidity constraints
• Dependent variable: net national savings
divided by net national product
• benchmark regressors: GDP growth rate,
ratio of inflation-adjusted government
saving to net national product, dependency
ratio
• New regressors: maximum LTV ratio,
country and time dummies
Savings and liquidity constraints
• Main Conclusions:
– Positive relation between growth and savings
– An increase in the LTV ratio reduces the
national saving rate
– The effect of growth on savings depend on the
severity of liqudity constraint
Growth and liquidity constraints
• Checking whether liquidity constrain has some
explanatory power in reduced form of equation of
growth
• Two data sets:
– by De Long and summers (1991)
– by Barro and Wolf (1989)
• Regression of productivity growth in 1960-1985
on:
–
–
–
–
the labor force growth
the share of equipment and non-equipment investment
the labor productivity gap relative to the US
the LTV ratio
Growth and liquidity constraints
• Main conclusions:
– Countries with lowet initial productivity relative to US
exhibit faster growth is subsequent periods
– Liquidity constrain promotes growth
– Determinants of growth:
• Initial level of per capita GDP
• Secondary school enrolment
• LTV ratio
– Financial repression in the market for bussines loan
reduces productive investment and growth
Conclusions:
• Liquidity constraints on households:
– Raise the saving rate
– Strengthen the effect of growth on saving
– Foster productivity growth in models in which growth is
endogenous
• Financial liberalisation and integration may lead
to:
– easing of liquidity constrains
– deterioration in the overall savings and growth
performance
– reduction of welfare of current and future generations
Thank You!