New York (ABC Live): United States Personal Saving Rate : Following the 2008 financial crisis, there was broad support in the U.S. for measures to restore growth through expansionary monetary and fiscal measures and for strengthening the resilience of the financial sector.
Moreover, the failure to anticipate the timing and severity of the crisis led many observers to ask whether the standard macroeconomic relationships used to produce forecasts omitted key macro-financial variables. T
hey also questioned whether these relationships would remain useful after the crisis given the likely permanent changes in household and corporate behavior due to the crisis. Years later, the implications of the crisis on the standard macroeconomic relationships remain unclear. The aim of this paper is to shed some light on this issue in the case of the U.S. personal saving rate.
From 1975 to 2007, there was a clear downward trend in the personal saving rate, which ended soon after the onset of the financial crisis in 2008.
There was a significant rise in the saving rate during 2008-2012, reflecting (possibly) the increased economic uncertainty associated with the financial crisis and the subsequent balance sheet restructuring and deleveraging by households.
The saving rate resumed its decline around 2013 and now appears to be returning to its pre-2008 level.
There is a lack of consensus on what caused these major swings in the saving rate, and whether they reflect structural (i.e., permanent) changes in the household sectors’ saving behaviour.
This issue has implications for the outlook for U.S. consumption and GDP growth, financial market stability, and external imbalances. Understanding the fundamental determinants of the saving rate will help assess whether the gap between investment and saving has become more persistent because of changes in the long-run propensities to save and invest, and to inform discussions on the behavior of the current account and the potential for larger external imbalances.
The increase in the current account deficit during 2017 can be attributed to the decline in personal saving and the increase in gross investment (both public and private), which in terms of their effect on the current account were offset by the increase in private saving (excluding personal).
These observations about the recent movements in the current account could not be drawn without a decomposition of savings into its components. The determinants of savings and investments therefore hold valuable information on the fundamental drivers of the current account. Given the importance of the personal saving component, this paper will focus on the behavioral characteristics of personal saving.3
To study personal savings, the IMF paper develops a multi-equation, time-series model for aggregate consumption and to read full content of paper click Here
