Household Savings Decision and Income Uncertainty

Martin Beznoska and Richard Ochmann

No 1046, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper empirically investigates the effects of changes in the interest rate as well as transitory income uncertainty on households' consumption-savings decision. Applying a structural demand model to German survey data, we estimate the uncompensated interest rate elasticity for savings, in line with the literature, to around zero. Accordingly, any policy-induced variation of net returns to savings is expected to have no significant effects on the level of savings. Moreover, we find significant effects of precautionary savings on the consumption-savings decision. As a result of a doubling of transitory income uncertainty, an average household increases savings by 4:4%. These effects vary by household composition and social status.

Keywords: Consumption-savings decision; interest rate elasticity of savings; income uncertainty (search for similar items in EconPapers)
JEL-codes: D12 D91 E21 (search for similar items in EconPapers)
Pages: 53 p.
Date: 2010
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Citations: View citations in EconPapers (10)

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