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Precautionary Saving of Chinese and U.S. Households

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  • HORAG CHOI
  • STEVEN LUGAUER
  • NELSON C. MARK

Abstract

We employ a model of precautionary saving to study why household saving rates are high in China and low in the United States. The use of recursive preferences gives a convenient decomposition of saving into precautionary and nonprecautionary components. Over 80% of China's saving rate and nearly all U.S. saving arises from the precautionary motive. The difference between U.S. and Chinese household income growth rates is vastly more important than income risk for explaining the saving rates. The key mechanism is that precautionary savers have target wealth‐to‐income ratios, and rapid income growth necessitates high saving rates to maintain the ratio.

Suggested Citation

  • Horag Choi & Steven Lugauer & Nelson C. Mark, 2017. "Precautionary Saving of Chinese and U.S. Households," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(4), pages 635-661, June.
    • Handle: RePEc:wly:jmoncb:v:49:y:2017:i:4:p:635-661
    DOI: 10.1111/jmcb.12393
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    9. Steven Lugauer & Jinlan Ni & Zhichao Yin, 2014. "Micro-Data Evidence on Family Size and Chinese Saving Rates," Working Papers 023, University of Notre Dame, Department of Economics, revised Jun 2014.
    10. AJ A. Bostian & Christoph Heinzel, 2018. "Comparative precautionary saving under higher-order risk and recursive utility," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 43(1), pages 95-114, May.
    11. Curtis, Chadwick C. & Lugauer, Steven & Mark, Nelson C., 2017. "Demographics and aggregate household saving in Japan, China, and India," Journal of Macroeconomics, Elsevier, vol. 51(C), pages 175-191.
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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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