SAVING, GROWTH, AND LIQUIDITY CONSTRAINTS

In the context of an overlapping-generations model, we show that liqui dity constraints on households (i) raise the saving rate, (ii) strengt hen the effect of growth on saving, (iii) increase the growth rate if productivity growth is endogenous, and (iv) may increase welfare. The first three positions are supported by cross-country regressions of sa ving and growth rates on indicators of liquidity contraints on househo lds. The results suggest that financial deregulation in the 1980s has contributed to the decline in national saving and growth rates in the OECD countries.