Working Paper: NBER ID: w1383
Authors: Patric H. Hendershott; Joe Peek
Abstract: Household or personal saving is recomputed to include net purchases of consumer durables, net contributions to government life insurance and pension reserves, and an adjustment for the inflation premium component in interest income. These adjustments raise the measured household saving rate by nearly 5 percentage points in the 1965-75 period but result in an extremely sharp 7 percentage point decline in the rate between 1975 and the early 1980s. A model of household saving behavior is then presented and estimated using annual data from the 1952-82 period. While saving responds to numerous influences, major swings in the adjusted saving rate -- a significant decline in the 1950s and rebound in the early 1960s, as well as the decline since 1975 -- are largely explained by two variables: the wealth/income ratio and the growth rate of real income.
Keywords: household saving; econometric investigation; wealth-income ratio; real income growth
JEL Codes: D91; E21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wealth-income ratio (D31) | household saving behavior (D14) |
| growth rate of real income (O49) | household saving behavior (D14) |
| adjustments to measurement of household saving (D14) | household saving rate (D14) |
| wealth-income ratio and growth rate of real income (E25) | fluctuations in household saving behavior (D14) |