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Household Savings Decision and Income Uncertainty

  • Martin Beznoska
  • Richard Ochmann

This paper empirically investigates the effects of changes in the interest rate as well as transitory income uncertainty on households' consumption-savings decision. Applying a structural demand model to German survey data, we estimate the uncompensated interest rate elasticity for savings, in line with the literature, to around zero. Accordingly, any policy-induced variation of net returns to savings is expected to have no significant effects on the level of savings. Moreover, we find significant effects of precautionary savings on the consumption-savings decision. As a result of a doubling of transitory income uncertainty, an average household increases savings by 4:4%. These effects vary by household composition and social status.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.359312.de/dp1046.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1046.

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Length: 53 p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwwpp:dp1046
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  1. Schmidt-Hebbel, Klaus & Webb, Steven B. & Corsetti, Giancarlo, 1991. "Household saving in developing countries : first cross-country evidence," Policy Research Working Paper Series 575, The World Bank.
  2. Masao Ogaki & Jonathan David Ostry & Carmen Reinhart, 1995. "Saving Behavior in Low and Middle-Income Developing Countries; A Comparison," IMF Working Papers 95/3, International Monetary Fund.
  3. Axel Borsch-Supan & Lothar Essig, 2003. "Household Saving in Germany: Results of the first SAVE study," NBER Working Papers 9902, National Bureau of Economic Research, Inc.
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