Inflation and the Saving Rate

Russell Davidson and James MacKinnon

Working Paper from Economics Department, Queen's University

Abstract: This paper provides a simple explanation for the observed positive relationship between savings rates and inflation rates in modern Western economies. We argue that this relationship arises because, in times of inflation, measured income and savings overestimate the corresponding real quantities. This explanation is compared with one recently advanced by Deaton. Both models are then estimated using American and Canadian time series data. We find that our explanation appears to be satisfactory, while Deaton's can be rejected.

Pages: 27
Date: 1979
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Published in Applied Economics, 15, 1983

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