B. Savings, Investment and Growth: New Approaches for Macroeconomic Modeling

Abstract

In macroeconomics, there are two contrasting views to the role of the savings rate. In a short-termKeynesian perspective, a rise in the savings rate s reduces the equilibrium income. However, the long-run neoclassical growth model suggests that a rise in the savings rate raises equilibrium real income. Short-term macroeconomic analysis is rarely linked to long-term dynamics, and this can be misleading for policymakers. Moreover, it leaves policymakers, who would like to know under which conditions a rise in the savings ratio shows up in a contractionary or an expansionary impact, confused.