Excess Savings and Consumer Behavior: Excess Compared to What?

Martin DeLuca and Roberto Pinheiro

Economic Commentary, 2023, vol. 2023, issue 19, 10

Abstract: How much accumulated savings do households hold, and what do these savings imply about future consumption? Economists typically consider excess savings when gauging the level of savings that households may use to maintain real consumption as costs rise. Economists have estimated strikingly different levels of currently held excess savings. We highlight the differences between measures of counterfactual savings—that is, the amount of savings households would be expected to hold barring unusual events—and their relevance in computing post pandemic excess savings. Furthermore, we show that, using counterfactual savings that rely on the idea of consumption smoothing, excess savings are currently positive in the case that households assume that recent income losses are transitory. These findings carry additional implications for expected personal consumption expenditure patterns.

Keywords: Household saving; household spending; inflation (search for similar items in EconPapers)
Date: 2023
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DOI: 10.26509/frbc-ec-202319

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