Pandemic, risk-adaptation and household saving: evidence from China

Yixing Zhang, Xiaomeng Lu, Haitao Yin and Rui Zhao

China Finance Review International, 2021, vol. 13, issue 3, 509-533

Abstract: Purpose - Scholars have not agreed with each other on how people would behave after experiencing a catastrophic event. They could save more as a precautionary action for future difficulties or save less with acarpe diemattitude. This study aims to attempt to shed light on this debate with empirical observations on how the Covid-19 pandemic has affected household saving decisions. Design/methodology/approach - The two waves of the survey data allowed us to investigate both instantaneous and ongoing effects of Covid-19 on household saving decisions. The instantaneous effect refers to the immediate impact of the crisis, while the ongoing effect refers to the lasting impact of the pandemic when economic recovery had started. The variation in the number of confirmed cases across cities during the two waves provides the source of power for identification. The authors extend their analyses of the impact of Covid-19 on the household saving decision by using ordinary least squares models. Due to the ordered nature of survey responses, the authors also rerun all baseline models using the ordered probit regression method. Findings - This paper studied the impact of the Covid-19 pandemic on household saving decisions in China. This study found that households in the most affected cities would save more during the Covid-19 but tend to save less when the disaster started fading away. Combining findings in Kunet al.(2013) and Filipskiet al.(2015), people do become more pessimistic during and after the Covid-19, possibly driving their observed precautionary andcape diembehaviors during the two points of time. Heterogeneity analysis shows that specific households would dramatically change their saving behavior. These observations might be useful for policymakers who concern the economic recovery after this pandemic disaster. Originality/value - Understanding how the Covid-19 pandemic would affect household consumption vs saving decisions is important for the economic recovery after this disaster comes to an end. The analyses presented in this research could be useful for policymakers who concern appropriate policies aiming to boost consumption and economic activities after Covid.

Keywords: Covid-19; Household saving decisions; Risk-adaptation; Instantaneous effect; Ongoing effect; Psychological mechanisms; D14; E21; G41; G51 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:cfripp:cfri-04-2021-0077

DOI: 10.1108/CFRI-04-2021-0077

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