The Short-Run and Long-Run Determinants of Household Saving:Evidence from OECD countries

Philemon Kwame Opoku

No 2019/0110, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: This paper examines the relationship between interest rates and household saving rates for an uneven panel of 19 OECD countries during the period 1995 to 2018. Unlike earlier studies, it uses the pooled mean group (PMG) methodology to investigate which of the interest rate effects, income or substitution, dominates in the short run, long run, or both periods. With the baseline estimations, I find that the income effect outweighs the substitution effect in the short run, and vice versa in the long run. I also finf that inflation (both expected and actual) household wealth through housing prices, unemployment rate, current taxes on income and wealth, and general government debt have significant negative impact on household saving in the long run. Current taxes on income and wealth has a strong negative impact on household saving in the short run.

Keywords: household saving; interest rates; ination; taxation; unemployment rate; dynamic heterogeneous panel data model (search for similar items in EconPapers)
JEL-codes: C23 E21 E24 E43 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-eec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp01102019

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