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Because the marginalpropensitytosave is increasing with the wealth level, the reduction of the cross-sectional dispersion reduces the bond price.
Consider an economic model in which the marginalpropensitytosave does not depend on the wealth level.
The marginalpropensitytosave of farmers is much higher than that of government employees, not because farmers are great savers, but because their income is very unstable.
The subsistence income level and the preference parameter , the marginalpropensitytosave, are not directly related to occupational choice and cannot be identified from this estimation.
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