Piggy Banks: Financial Intermediaries as a Commitment to Save

24 Pages Posted: 28 Jan 1999

Date Written: November 1998


Savers with uncertain life spans cannot stick to long-term investment plans when they invest directly in liquid assets. Before horizons are known, all savers will plan to roll over their short-term assets if returns turn out high. Ex post, the short-term investors will consume their liquid assets rather than reinvest them. Delegating investment decisions to an intermediary reduces the commitment problem, and leads to more efficient portfolios. The higher return to savings should also increase savings rates.

JEL Classification: G21, G23, E21

Suggested Citation

Morgan, Donald P., Piggy Banks: Financial Intermediaries as a Commitment to Save (November 1998). FRB of New York Staff Report No. 50. Available at SSRN: https://ssrn.com/abstract=142297 or http://dx.doi.org/10.2139/ssrn.142297

Donald P. Morgan (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
Research Department
New York, NY 10045
United States
212-720-6573 (Phone)

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