IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v98y2008i5p1798-1828.html
   My bibliography  Save this article

The Response of Household Saving to the Large Shock of German Reunification

Author

Listed:
  • Nicola Fuchs-Schundeln

Abstract

German reunification was a large, unexpected shock for East Germans. Exploiting German reunification as a natural experiment, I analyze the validity of the life-cycle consumption model. I derive three stylized features concerning the saving behavior of East versus West Germans after reunification: (i) East Germans have higher saving rates than West Germans; (ii) this East-West gap is increasing in age at reunification; and (iii) for every cohort, this gap is declining over time. I show that a comprehensive life-cycle model can replicate these features. The precautionary saving motive is essential for the success of the model. (JEL D14, D91, E21)

Suggested Citation

  • Nicola Fuchs-Schundeln, 2008. "The Response of Household Saving to the Large Shock of German Reunification," American Economic Review, American Economic Association, vol. 98(5), pages 1798-1828, December.
  • Handle: RePEc:aea:aecrev:v:98:y:2008:i:5:p:1798-1828
    Note: DOI: 10.1257/aer.98.5.1798
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.98.5.1798
    Download Restriction: no

    File URL: http://www.aeaweb.org/aer/data/dec08/20060121_data.zip
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andreas Fagereng & Martin B. Holm & Gisle J. Natvik, 2016. "MPC heterogeneity and household balance sheets," Discussion Papers 852, Statistics Norway, Research Department.
    2. Giavazzi, Francesco & McMahon, Michael, 2008. "Policy Uncertainty and Precautionary Savings," CEPR Discussion Papers 6766, C.E.P.R. Discussion Papers.
    3. Marcos D. Chamon & Eswar S. Prasad, 2010. "Why Are Saving Rates of Urban Households in China Rising?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 93-130, January.
    4. Christian Bayer & Falko Juessen, 2015. "Happiness and the Persistence of Income Shocks," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(4), pages 160-187, October.
    5. Xuan Liu & Zhiwei Cui, 2011. "Approximation Errors of Perturbation Methods in Solving a Class of Dynamic Stochastic General Equilibrium Models," Computational Economics, Springer;Society for Computational Economics, vol. 38(2), pages 107-128, August.
    6. Corneo, Giacomo & Keese, Matthias & Schröder, Carsten, 2010. "The Effect of Saving Subsidies on Household Saving – Evidence from Germanys," Ruhr Economic Papers 170, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    7. Bick, Alexander & Choi, Sekyu, 2013. "Revisiting the effect of household size on consumption over the life-cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2998-3011.
    8. Corneo, Giacomo & Keese, Matthias & Schröder, Carsten, 2008. "Can governments boost voluntary retirement savings via tax incentives and subsidies? A German case study for low-income households," Economics Working Papers 2008-18, Christian-Albrechts-University of Kiel, Department of Economics.
    9. Gert G. Wagner, 2009. "The German Socio-Economic Panel (SOEP) in the Nineties: An Example of Incremental Innovations in an Ongoing Longitudinal Study," SOEPpapers on Multidisciplinary Panel Data Research 257, DIW Berlin, The German Socio-Economic Panel (SOEP).
    10. Christian Pfarr & Udo Schneider, 2011. "Anreizeffekte und Angebotsinduzierung im Rahmen der Riester‐Rente: Eine empirische Analyse geschlechts‐ und sozialisationsbedingter Unterschiede," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 12(1), pages 27-46, February.
    11. Cristina Barceló & Ernesto Villanueva, 2010. "The response of household wealth to the risk of losing the job: evidence from differences in firing costs," Working Papers 1002, Banco de España;Working Papers Homepage.
    12. repec:eee:moneco:v:87:y:2017:i:c:p:13-33 is not listed on IDEAS

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

    Lists

    This item is featured on the following reading lists or Wikipedia pages:
    1. The Response of Household Saving to the Large Shock of German Reunification (AER 2008) in ReplicationWiki

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:98:y:2008:i:5:p:1798-1828. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert). General contact details of provider: http://edirc.repec.org/data/aeaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.