Productivity growth and the U.S. saving rate

Over the last half century, the saving rate in the United States exhibited significant variations. In this paper, I examine whether a general equilibrium model that allows for shifts in the growth rate of total factor productivity can account for these variations. The model generates significant medium-run variations in the U.S. saving rate, and establishes a link between episodes of productivity growth slowdowns or accelerations and the saving rate-two concepts that have often been treated in isolation. While a productivity-growth based explanation is able to account for broader trends in the rising consumption-income ratio from about 1980 to 2000, there are other episodes during which the model is less successful.