Long-run Growth and Short-run Stabilization

Long-run Growth and Short-run Stabilization

Essays in Memory of Albert Ando

Edited by Lawrence R. Klein

There is much confusion in the economics literature on wage determination and the employment–inflation trade-off. Few model builders pay as much careful attention to the definition and meaning of long-run concepts as did Albert Ando. Expanding on years of painstaking work by Ando, the contributors elaborate on the main issues of economic analysis and policies that concerned him.

Chapter 4: Demographic Changes, Reforms to the Social Security System and Private Savings in Italy

Sergio Nicoletti-Altimari

Subjects: economics and finance, econometrics


* Sergio Nicoletti-Altimari 1. INTRODUCTION With his seminal work together with Franco Modigliani in 1963, Albert Ando was one of the main contributors to the success of the life-cycle theory, probably one of the most substantial and enduring accomplishments of the economics profession in the second half of the twentieth century. Albert Ando was certainly not, however, a complacent man, and devoted a substantial part of his professional life to the attempt to go beyond that theory and deepen our understanding of the economic life of the society. In particular, he regarded the life-cycle paradigm, at least in its simple, streamlined version, as inadequate to provide an accurate description of the aggregate implications of the very heterogeneous behavior of households that one could observe at the micro level. In the streamlined version of the theory, for example, the aggregate saving rate of a society is mainly the reflection of the age distribution of the population, and its evolution over time reflects changes in such distribution. As he used to emphasize, however, as soon as we attempt a detailed description of the dependence of the economic behavior of an individual on his/her demographic characteristics, it becomes obvious that the latter depends, not only on age, but also on the nature of the family to which the individual belongs, and on the role he/she plays in the family. Indeed, for economic decisions, in most cases it is more natural to consider a family or a household rather than an individual as...

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