A Backward Bending Supply of Loanable Funds: An Examination of the Interest Rate Elasticity of Saving

The market for loanable funds is presented as either a market with an upward sloping supply curve, or as one with a perfectly inelastic supply. This paper relates the supply of loanable funds to the supply curve in the labor market: backward bending. Once interest rates are high enough, people start to save less, creating the backward bend.” This explains the discrepancies in previous literature that attempted to put a single value on the interest rate elasticity saving. The reason for the variation in values could be because the elasticity actually depends on the point on the curve