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The Saving to Income Ratio: A Note

Author

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  • Lester, Laurence H.

    (Flinders University South Australia)

Abstract

It has been suggested that, whilst in the late 1960s to early 1970s saving rates were quite high, since then there has been a gradual and persistent reduction in the saving to income ratio (S/Y) - thus indicating a substantial change in behaviour. This note considers the ratio of private saving to an adjusted measure of income (S/Y*) finding evidence to suggest that whilst the S/Y ratio is a nonstationary random walk, the ratio S/Y* is stationary (random fluctuations about its mean). This 'mean reverting' ratio implies there has not been any long term alteration to behavior. The policy implication of this finding is straightforward: if it is desirable to increase private (household) saving government policy must be directed toward moving household saving to a higher plateau and not engineering a return to a so called previous higher level.

Suggested Citation

  • Lester, Laurence H., 1996. "The Saving to Income Ratio: A Note," Economic Analysis and Policy, Elsevier, vol. 26(1), pages 59-76, March.
    • Handle: RePEc:eee:ecanpo:v:26:y:1996:i:1:p:59-76
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    Keywords

    Saving;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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