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Cyprus: Selected Issues

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  • International Monetary Fund

Abstract

This Selected Issues paper on Cyprus models the evolution of the saving rate to help shed some light on its determinants, which could help inform medium-term projections. This paper suggests that household net wealth and unemployment are key determinants of the saving rate in Cyprus. Cypriot households dissaved in the period preceding the global crisis, as their wealth increased, and credit could be used to finance consumption. The data uncertainty, due to various data sources used and relatively short time-period may affect the regression results. Moreover, in the estimation, the endogeneity between household wealth and the saving rate, as well as between unemployment and the saving rate may have not been fully controlled through lags. Due to the lack of micro-level data, the analysis does not explore the distributional consideration with respect to wealth. Since wealth is likely distributed unevenly, high indebted households with limited wealth are likely to reduce their saving rate more than the average to support consumption in the face of economic stress. The forward-looking projections are also subject to considerable uncertainty and should be interpreted with care.

Suggested Citation

  • International Monetary Fund, 2014. "Cyprus: Selected Issues," IMF Staff Country Reports 2014/314, International Monetary Fund.
    • Handle: RePEc:imf:imfscr:2014/314
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    1. Fabian Bornhorst & Ms. Annalisa Fedelino & Jan Gottschalk & Miss Gabriela Dobrescu, 2011. "When and How to Adjust Beyond the Business Cycle? A Guide to Structural Fiscal Balances," IMF Technical Notes and Manuals 2011/002, International Monetary Fund.
    2. Fabian Bornhorst & Annalisa Fedelino & Jan Gottschalk & Gabriela Dobrescu, 2011. "When and How to Adjust Beyond the Business Cycle? A Guide to Structural Fiscal Balances," IMF Technical Notes and Manuals 11/02, International Monetary Fund.
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    Cited by:

    1. Sofronis Clerides, 2014. "The Collapse of the Cypriot Banking System: A Bird’s Eye View," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 8(2), pages 3-35, December.

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