Household Savings and Negative Interest Rates

Klaas Staal ()
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Klaas Staal: Karlstad University

International Advances in Economic Research, 2023, vol. 29, issue 1, No 1, 13 pages

Abstract: Abstract This paper analyses determinants of household savings in a model based on an extension of the disequilibrium savings theory. These extensions follow from the life-cycle, permanent-income and Ricardian-equivalence theories. Based on panel data of 20 countries from the period 2000–2020, fixed-effect least squares estimation procedures are used. The analysis provides evidence that negative interest rates lead to a statistically and economic significant increase in savings. This implies that stimulating household consumption with a monetary policy of negative interest rates is counter-productive. The positive effect of income uncertainty and lagged saving rates gets smaller for negative interest rates, weakening the support for the disequilibrium-savings theory. Larger government deficits increase savings even more when rates are negative, strengthening the Ricardian equivalence effect. The effect of negative interest on the predictions of the life-cycle and permanent-income theories is mixed.

Keywords: Household savings rate; Savings’ determinants; Negative interest rates; Panel data (search for similar items in EconPapers)
JEL-codes: F31 F32 F36 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11294-023-09870-1

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