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Heterogeneous inflation and deflation experiences and savings decisions during German industrialization

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  • Lehmann-Hasemeyer, Sibylle
  • Neumayer, Andreas
  • Streb, Jochen

Abstract

Our microeconomic study of the savings behavior of 2,500 German savers in the second half of the 19th century allows us to explore the causes of individual savings decisions in an emerging economy. Inferring savers’ inflation expectations from the personal inflation experiences they made we confirm the standard interpretation of the Euler equation: The savers of our sample reduced their savings with an increase in this proxy for inflation expectation. Beyond this result, our study provides three additional insights. First, we observe a non-linear relationship between inflation experience and savings, implying that savers responded only to exceptionally high inflation (and deflation) experiences ignoring smaller fluctuations in this measure. Second, we find that savers also reacted to high deflation experiences with reducing their savings. This surprising behavior becomes reasonable when we consider that, in the second half of the 19th century, the globalization-driven decline in consumer prices was associated with an increase in nominal wages. Third, we show that it was mainly long-time female savers with above-average savings balances who adjusted their savings to changing inflation experiences.

Suggested Citation

  • Lehmann-Hasemeyer, Sibylle & Neumayer, Andreas & Streb, Jochen, 2023. "Heterogeneous inflation and deflation experiences and savings decisions during German industrialization," Journal of Banking & Finance, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:jbfina:v:154:y:2023:i:c:s0378426623001760
    DOI: 10.1016/j.jbankfin.2023.106978
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    More about this item

    Keywords

    Deflation; Euler equation; Expectations; Experience; Gender; Inflation; Industrialization; Inequality; Working class;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • N33 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - Europe: Pre-1913

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