The Response of Household Saving to the Large Shock of German Reunification

Nicola Fuchs-Schundeln

American Economic Review, 2008, vol. 98, issue 5, 1798-1828

Abstract: German reunification was a large, unexpected shock for East Germans. Exploiting German reunification as a natural experiment, I analyze the validity of the life-cycle consumption model. I derive three stylized features concerning the saving behavior of East versus West Germans after reunification: (i) East Germans have higher saving rates than West Germans; (ii) this East-West gap is increasing in age at reunification; and (iii) for every cohort, this gap is declining over time. I show that a comprehensive life-cycle model can replicate these features. The precautionary saving motive is essential for the success of the model. (JEL D14, D91, E21)

JEL-codes: D14 D91 E21 R23 (search for similar items in EconPapers)
Date: 2008
Note: DOI: 10.1257/aer.98.5.1798
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Citations: View citations in EconPapers (25)

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