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How do savings of different sectors respond to interest rate change?

Michał Gradzewicz ()
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Michał Gradzewicz: Warsaw School of Economics

Central European Journal of Economic Modelling and Econometrics, 2019, vol. 11, issue 1, 1-22

Abstract: The literature investigates the relation between savings and interest rate mainly for household sector, but in recent decades households ceased to be the main source of savings in the economy. We try to identify how the savings of different sectors respond to the interest rate change using the SVAR methodology. We focus on Poland and generalize the results for other European economies. We find that although the household savings rate tends to rise after an increase of interest rate, the corporate savings simultaneously fall, inducing a negative conditional correlation between them. The responses of savings rate of general government and foreign savings are diverse (although the former usually declines after an interest rate increase) and does not seem to be related to factors like the membership in the currency union or the level of public debt. We also check the existence of the `crowding-out' effects and conclude it only applies in the case of government savings crowding out household savings.

Keywords: savings; interest rate; responsiveness; sectoral analysis; SVAR (search for similar items in EconPapers)
JEL-codes: E21 E43 E52 C32 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:psc:journl:v:11:y:2019:i:1:p:1-22