Dynamic Efficiency, Optimal Saving and the Role of Pensions
Recent evidence suggests that for several advanced economies the criterion for dynamic efficiencycannot be verified. Therefore, excess savings and over-accumulation of capital may in fact be an empiricallyrelevant issue. If dynamic inefficiency prevails, welfare is not maximised and lifetime consumption ofhouseholds could be increased. The existence of dynamic inefficiency and excess savings is an interestinghypothesis and can potentially help explaining such puzzling macroeconomic phenomena as long-lastingperiods with low interest rates and financial bubbles. Indeed, interest rates in Denmark have been particularlylow since the turn of the millennium and, for example, the Danish housing market has been subject to cycles thatincluded a bubble burst in 2008. This research project intends to rationalize these stylised macroeconomic facts.Furthermore, it aims to study how dynamic inefficiency is optimally dealt with using public policy. A specialemphasis is put on policies affecting household savings within a well-developed pension scheme.
Aase og Ejnar Danielsens Fond