Franco Mdigliani Analysis

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Franco Modigliani was born in Rome in 1918 to Enrico Modigliani and Olga Flaschel. His father worked as a successful pediatrician while his mother was a social worker. As a young child and in his early teenage years Franco did not distinguish himself academically, this lackluster performance was further compounded by the untimely passing of his father in 1932, due to an unsuccessful surgery. It was only after a transfer to "Liceo Viscont" an extremely well-regarded academic school that Franco began to flourish academically. He skipped his final year and attended Sapienza University of Rome at the young age of seventeen. He decided to go against the advice of his family to enter the medical route and instead entered Sapienza as a law undergraduate.…show more content…
Prior to his hypothesis savings was treated as a constant in the sense that it was a good that you bought from your income. However, his analysis trended in a different direction more towards that of Irving Fisher that who found that savings were dynamic, that the allocation of savings was done over a lifetime of consumption. The Keynesian viewpoint led to a theory that the percentage that you saved rose when your income rose and fell when your income fell. Leading to what Modigliani terms "an absurd situation where rich countries save and poor countries dissave" a concept that evidently cannot last for ever as countries would go bankrupt and there is also no time basis placed on how long the country had been saving for. The basis of his analysis deals with two concepts.Firstly the permanent income hypothesis developed by Milton Friedman at the same time that consumption depends on your permanent income, in essence your expected income over time. The second concept is transitory income it discusses how the high savers are not the rich but the temporarily rich. The real difference between Friedman and Modigliani's hypothesis is that Modigliani treats life as finite. The main consequence being that due to a finite lifetime savings attitudes differ based on your place in your lifespan and…show more content…
This original model used by the Federal Reserve although small in scale in comparison to modern models was designed for forecasting future growth and potential policy implications. It originally contained 60 equation and the model was used between 1970 and retired in 1995. It relied heavily on the Hicks-Hansen IS/LM model, William Philips inflation curve and neo-classical growth models of production. It was designed for the analysis of stabilization policies and therefore played close attention to both fiscal and monetary

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