The Saving to Income Ratio: A Note

Laurence H. Lester
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Laurence H. Lester: Flinders University South Australia

Economic Analysis and Policy, 1996, vol. 26, issue 1, 59-76

Abstract: It has been suggested that, whilst in the late 1960s to early 1970s saving rates were quite high, since then there has been a gradual and persistent reduction in the saving to income ratio (S/Y) - thus indicating a substantial change in behaviour. This note considers the ratio of private saving to an adjusted measure of income (S/Y*) finding evidence to suggest that whilst the S/Y ratio is a nonstationary random walk, the ratio S/Y* is stationary (random fluctuations about its mean). This 'mean reverting' ratio implies there has not been any long term alteration to behavior. The policy implication of this finding is straightforward: if it is desirable to increase private (household) saving government policy must be directed toward moving household saving to a higher plateau and not engineering a return to a so called previous higher level.

Keywords: Saving (search for similar items in EconPapers)
JEL-codes: E21 (search for similar items in EconPapers)
Date: 1996
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