Files

Abstract

We provide a microeconomic analysis of saving behavior with idiosyncratic interest rates, for which a transfer rate determines the spread between the interest rate in the good and the bad state. A positive (negative) transfer rate reinforces the decision to save for correlation loving (averse) individual. We also de_ne a critical transfer rate that induces agents to save who would not do so otherwise, and determine its comparative statics. We _nd su_cient conditions for a larger transfer rate to increase savings and show that an idiosyncratic interest rate is welfare increasing for individuals with non-trivial correlation attitudes. The welfare bene_ts of idiosyncratic interest rates are related to their insurance e_ects.

Details

Actions

Preview