Political Uncertainty and Household Savings

Rolf Aaberge, Kai Liu and Yu Zhu

No 34/2014, Discussion Paper Series in Economics from Norwegian School of Economics, Department of Economics

Abstract: Despite macroeconomic evidence pointing to a negative aggregate consumption response due to political uncertainty, few papers have used microeconomic panel data to analyze how households adjust their consumption after an uncertainty shock. We study household savings and expenditure adjustment from an unexpected, large-scale and rapidly evolving political shock that occurred largely in May 1989 in Beijing, China. Using monthly micro panel data, we present evidence that a surge in political uncertainty resulted in significant temporary increases in savings among urban households in China. Households responded mainly by reducing semi-durable expenditure and frequency of major durable adjustment. The uncertainty effect is more pronounced among older, wealthier, and more socially advantaged households. We interpret our findings using existing models of precautionary behavior. By focusing on time variation in uncertainty, our identification strategy avoids many of the potential problems in empirical studies of precautionary savings such as self-selection and life-cycle effects.

Keywords: China; household savings; political uncertainty. (search for similar items in EconPapers)
JEL-codes: D91 E21 J30 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2014-12-04
New Economics Papers: this item is included in nep-cna, nep-mac and nep-tra
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Political uncertainty and household savings (2017)
Working Paper: Political Uncertainty and Household Savings (2014)
Working Paper: Political uncertainty and household savings (2014)
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