Credit Constraints and Growth in a Global Economy Discussion by Christopher Carroll http://econ.jhu.edu/people/ccarroll/discussions/CreditConstrAndGrowth-Slides.pdf Johns Hopkins University ccarroll@jhu.edu NBER IFM Meetings Cambridge, MA July 2011
Theory Evidence This Paper Growth (Γ) and Saving ( s ) What Might Work? Conclusion References Growth (Γ) and Saving ( s ) History: Modigliani (1960s): Γ ⇒ s Young people (savers) are richer Old people (dissavers) are poorer (Tobin, 1967): Doesn’t work (quantitatively) ... ... unless growth is exclusively ‘cross-generational’ ‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster Coeurdacier, Guibaud, Jin Credit and Growth
Theory Evidence This Paper Growth (Γ) and Saving ( s ) What Might Work? Conclusion References Growth (Γ) and Saving ( s ) History: Modigliani (1960s): Γ ⇒ s Young people (savers) are richer Old people (dissavers) are poorer (Tobin, 1967): Doesn’t work (quantitatively) ... ... unless growth is exclusively ‘cross-generational’ ‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster Coeurdacier, Guibaud, Jin Credit and Growth
Theory Evidence This Paper Growth (Γ) and Saving ( s ) What Might Work? Conclusion References Growth (Γ) and Saving ( s ) History: Modigliani (1960s): Γ ⇒ s Young people (savers) are richer Old people (dissavers) are poorer (Tobin, 1967): Doesn’t work (quantitatively) ... ... unless growth is exclusively ‘cross-generational’ ‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster Coeurdacier, Guibaud, Jin Credit and Growth
Theory Evidence This Paper Growth (Γ) and Saving ( s ) What Might Work? Conclusion References Growth (Γ) and Saving ( s ) History: Modigliani (1960s): Γ ⇒ s Young people (savers) are richer Old people (dissavers) are poorer (Tobin, 1967): Doesn’t work (quantitatively) ... ... unless growth is exclusively ‘cross-generational’ ‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster Coeurdacier, Guibaud, Jin Credit and Growth
Theory Evidence This Paper Growth (Γ) and Saving ( s ) What Might Work? Conclusion References Growth (Γ) and Saving ( s ) History: Modigliani (1960s): Γ ⇒ s Young people (savers) are richer Old people (dissavers) are poorer (Tobin, 1967): Doesn’t work (quantitatively) ... ... unless growth is exclusively ‘cross-generational’ ‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster Coeurdacier, Guibaud, Jin Credit and Growth
Theory Evidence This Paper Growth (Γ) and Saving ( s ) What Might Work? Conclusion References Growth (Γ) and Saving ( s ) History: Modigliani (1960s): Γ ⇒ s Young people (savers) are richer Old people (dissavers) are poorer (Tobin, 1967): Doesn’t work (quantitatively) ... ... unless growth is exclusively ‘cross-generational’ ‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster Coeurdacier, Guibaud, Jin Credit and Growth
Theory Evidence This Paper Growth (Γ) and Saving ( s ) What Might Work? Conclusion References Growth (Γ) and Saving ( s ) History: Modigliani (1960s): Γ ⇒ s Young people (savers) are richer Old people (dissavers) are poorer (Tobin, 1967): Doesn’t work (quantitatively) ... ... unless growth is exclusively ‘cross-generational’ ‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster Coeurdacier, Guibaud, Jin Credit and Growth
Theory Evidence This Paper Growth (Γ) and Saving ( s ) What Might Work? Conclusion References Growth (Γ) and Saving ( s ) History: Modigliani (1960s): Γ ⇒ s Young people (savers) are richer Old people (dissavers) are poorer (Tobin, 1967): Doesn’t work (quantitatively) ... ... unless growth is exclusively ‘cross-generational’ ‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster Coeurdacier, Guibaud, Jin Credit and Growth
Theory Evidence This Paper Growth (Γ) and Saving ( s ) What Might Work? Conclusion References Growth (Γ) and Saving ( s ) History: Modigliani (1960s): Γ ⇒ s Young people (savers) are richer Old people (dissavers) are poorer (Tobin, 1967): Doesn’t work (quantitatively) ... ... unless growth is exclusively ‘cross-generational’ ‘Cross-generational’: Workers in fast-growing country do not experience fast growth Agg growth comes from drastic rises in ‘starting wage’ After you’ve started work, your income doesn’t grow any faster Coeurdacier, Guibaud, Jin Credit and Growth
Theory Evidence This Paper Growth (Γ) and Saving ( s ) What Might Work? Conclusion References The Problem: The Human Wealth Effect In infinite horizon partial-equilibrium CEQ model: total wealth � �� � c t = ( b t + h t ) κ (1) where if current income is p t then human wealth h t is � p t � h t (2) ≈ r − γ Suppose r = 0 . 05. Then if growth rises from γ = 0 . 02 to γ = 0 . 03, h goes from 1/0.03 ≈ 33 to 1/0.02 = 50 times current income. ⇒ Human wealth effect is HUGE Coeurdacier, Guibaud, Jin Credit and Growth
Theory Evidence This Paper Growth (Γ) and Saving ( s ) What Might Work? Conclusion References 2- or 3- Period OLG vs Infinite Horizon (Summers, 1981): Realistic OLG Model Is Close To Infinite Horizon ‘Realistic:’ Not 2- or 3-period life Continuous time, or, say, 60-period life Key point: HW effect is big within middle-age group It’s cheating to hide this effect by using a 2- or 3-period model Coeurdacier, Guibaud, Jin Credit and Growth
Theory Evidence This Paper Growth (Γ) and Saving ( s ) What Might Work? Conclusion References 2- or 3- Period OLG vs Infinite Horizon (Summers, 1981): Realistic OLG Model Is Close To Infinite Horizon ‘Realistic:’ Not 2- or 3-period life Continuous time, or, say, 60-period life Key point: HW effect is big within middle-age group It’s cheating to hide this effect by using a 2- or 3-period model Coeurdacier, Guibaud, Jin Credit and Growth
Theory Evidence This Paper Growth (Γ) and Saving ( s ) What Might Work? Conclusion References 2- or 3- Period OLG vs Infinite Horizon (Summers, 1981): Realistic OLG Model Is Close To Infinite Horizon ‘Realistic:’ Not 2- or 3-period life Continuous time, or, say, 60-period life Key point: HW effect is big within middle-age group It’s cheating to hide this effect by using a 2- or 3-period model Coeurdacier, Guibaud, Jin Credit and Growth
Theory Evidence This Paper Growth (Γ) and Saving ( s ) What Might Work? Conclusion References 2- or 3- Period OLG vs Infinite Horizon (Summers, 1981): Realistic OLG Model Is Close To Infinite Horizon ‘Realistic:’ Not 2- or 3-period life Continuous time, or, say, 60-period life Key point: HW effect is big within middle-age group It’s cheating to hide this effect by using a 2- or 3-period model Coeurdacier, Guibaud, Jin Credit and Growth
Theory Evidence This Paper Growth (Γ) and Saving ( s ) What Might Work? Conclusion References 2- or 3- Period OLG vs Infinite Horizon (Summers, 1981): Realistic OLG Model Is Close To Infinite Horizon ‘Realistic:’ Not 2- or 3-period life Continuous time, or, say, 60-period life Key point: HW effect is big within middle-age group It’s cheating to hide this effect by using a 2- or 3-period model Coeurdacier, Guibaud, Jin Credit and Growth
Theory Evidence This Paper What Might Work? Conclusion References Context (Carroll & Summers, 1991) none of growth is ‘cross-generational’ Even if all were ‘cross-generational,’ still doesn’t work Lowest-saving age-group in Japan saved 25 percent Highest-saving age-group in U.S. saved 10 percent No reallocation by age can boost U.S. to Japanese rates (Carroll & Weil, 1994): Γ ↑ Granger-Causes s ↑ Positive: Japan, Korea, Hong Kong, Singapore, Taiwan, Botswana, Mauritius ... Negative: Post 1974 OECD, U.S. Out-of-sample: Japan post-1990 Theory: Constraints can’t explain it Coeurdacier, Guibaud, Jin Credit and Growth
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