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The effect of interest-rate changes on household saving and consumption: a survey

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Author Info
Douglas W. Elmendorf

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Abstract

Direct estimates of the interest elasticity of saving suffer from several serious problems. As an alternative, this survey uses an indirect approach that combines models of individual behavior with estimates of certain features of individuals' preferences. The paper examines the effect of interest-rate changes on the consumption and saving of people who follow the lifecycle model, who plan to leave bequests, who save to reach a fixed target, and who have short planning horizons. The models that likely describe the behavior of the people who account for most of aggregate saving imply positive interest elasticities of saving.

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Publisher Info
Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 96-27.

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Date of creation: 1996
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Handle: RePEc:fip:fedgfe:96-27

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Related research
Keywords: Consumption (Economics) ; Consumer behavior ; Interest rates;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Eric M. Engen & William G. Gale & John Karl Scholz, 1994. "Do Saving Incentives Work?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1994-1), pages 85-180. [Downloadable!]
  2. Feldstein, Martin, 1995. "Fiscal policies, capital formation, and capitalism," European Economic Review, Elsevier, vol. 39(3-4), pages 399-420, April. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sebastian Barnes & Garry Young, . "The rise in US household debt: assessing its causes and sustainability," Bank of England working papers 206, Bank of England. [Downloadable!]
  2. Douglas W. Elmendorf & Louise M. Sheiner, 2000. "Should America save for its old age? Population aging, national saving, and fiscal policy," Finance and Economics Discussion Series 2000-03, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  3. John M. Roberts, 2007. "Learning, Sticky Inflation, and the Sacrifice Ratio," Kiel Working Papers 1365, Kiel Institute for the World Economy. [Downloadable!]
  4. Junning Cai, 2003. "Fundamental Paper Wealth and Monetary Policy," Macroeconomics 0309001, EconWPA. [Downloadable!]
  5. Douglas W. Elmendorf & Louise M. Sheiner, 2000. "Should America Save for Its Old Age? Fiscal Policy, Population Aging, and National Saving," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 57-74, Summer. [Downloadable!] (restricted)
  6. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, vol. 92(1), pages 363-370, March. [Downloadable!]
  7. Junning Cai, 2003. "Asset Prices and Monetary Policy: Some Notes," Macroeconomics 0305006, EconWPA, revised 13 May 2003. [Downloadable!]
  8. Jonathan Gruber, 2006. "A Tax-Based Estimate of the Elasticity of Intertemporal Substitution," NBER Working Papers 11945, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Roy Cromb & Emilio Fernandez-Corugedo, . "Long-term interest rates, wealth and consumption," Bank of England working papers 243, Bank of England. [Downloadable!]
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This page was last updated on 2009-12-15.

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