How do savings of different agents respond to interest rate change?

The theory underlying the relation between savings and interest rates concerns the household sector, but in modern economies the household sector is not the main source of savings in the economy. Using the SVAR methodology, we try to identify the responsiveness of different sectors’ savings to interest rate changes. We focus on Poland and generalize results for other European economies. We found that responsiveness of savings to interest rate is diversified. In most of analyzed countries household savings rise after an interest rate increase, but simultaneously corporate savings fall, indicating negative conditional correlation between households’ and corporates’ savings. Moreover, the direction of responses of general government and foreign savings are diverse (although the former usually declines after an interest rate increase) and does not seem to be correlated with factors like membership in currency union or the level of debt. We also try to check whether “crowding-out” effects exist and conclude it only applies in the case of government savings crowding out household savings.