Long-term interest rates, asset prices, and personal saving ratio: Evidence from the 1990s
AbstractThis article investigates the personal saving ratio in the US economy in the last two decades. We examine whether the mortgage equity withdrawal (MEW) mechanism – the cash out from refinancing home mortgage conditions – is useful for explaining the saving ratio’s declining pattern. Empirically, we find that MEW depends on house price inflation and mortgage rates. We construct a VEC model among the two variables explaining MEW, the saving ratio and the stock price. We obtain a significant cointegrating relationship. We then estimate a structural form imposing restrictions, suggested by theoretical or empirical literature, on the long-run impact matrix. We find a negative response of the saving ratio to positive shocks in asset prices, whereas there is an opposite effect in the case of a positive shock in mortgage rates, according to the theoretical expectations.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 26754.
Date of creation: 06 Oct 2010
Date of revision:
Saving ratio MEW VEC asset prices long-term interest rates;
Find related papers by JEL classification:
- C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-27 (All new papers)
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