Time Preference and Saving Rate : Implications for Global Imbalances

Global imbalances - the current account imbalances of major countries - make the world economy unstable, and may have been one of the main causes of the global financial crisis. This study aims to analyze whether the difference in time preference generated global imbalances through its effect on saving rates. Our hypothesis is that the households of three East Asian countries (Korea, Japan, and Taiwan) are more “patient” than U.S. households. To evaluate this hypothesis,we estimated time preference - the time discount rate and the intertemporal elasticity - for three East Asian countries and compared the estimates to those of the U.S. The empirical results do not support the hypothesis, suggesting that a satisfactory explanation of global imbalances and the saving gap should come from something other than difference in time preference.