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Time preference and savings behaviour

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  • Yoonseok Choi
  • Jong-soo Han

Abstract

A number of studies have examined various determinants of savings rate. This article contributes to this literature by empirically testing whether the time preference (discounting behaviour) is another important determinant of savings rate. To this end, we estimate the hyperbolic Euler equation using the generalized method of moments (GMM) to examine whether the short-run discount factor can account for savings behaviour. The empirical results show that people exhibit short-run patience (impatience) when savings rate increases (decreases), which is in line with the theoretical prediction. This result implies that the time preference also plays an important role in determining savings behaviour. Various sets of instruments and different sample periods do not reverse the main finding.

Suggested Citation

  • Yoonseok Choi & Jong-soo Han, 2018. "Time preference and savings behaviour," Applied Economics Letters, Taylor & Francis Journals, vol. 25(14), pages 994-997, August.
    • Handle: RePEc:taf:apeclt:v:25:y:2018:i:14:p:994-997
    DOI: 10.1080/13504851.2017.1391989
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    Cited by:

    1. Tansel, Aysit & Öztürk, Ceyhan & Erdil, Erkan, 2021. "The Impact of Body Mass Index on Growth, Schooling, Productivity, and Savings: A Cross-Country Study," IZA Discussion Papers 14727, Institute of Labor Economics (IZA).
    2. Nguyen, John, 2023. "The impact of private health insurance on household savings : Evidence from Australia," Warwick-Monash Economics Student Papers 48, Warwick Monash Economics Student Papers.

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