Report
Piggy banks: financial intermediaries as a commitment to save
Abstract: 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.
Keywords: Saving and investment;
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Bibliographic Information
Provider: Federal Reserve Bank of New York
Part of Series: Staff Reports
Publication Date: 1998
Number: 50