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What Caused the Decline in the US Saving Ratio?

  • Paradiso, Antonio
  • Rao, B. Bhaskara

We investigate whether the mortgage equity withdrawal (MEW) mechanism is useful for explaining the large declines in the US personal saving ratio in the last two decades. MEW depends on house price inflation and mortgage rates. In addition stock prices may affect saving ratio. Therefore, we estimate a VEC model with these four variables. The impulse response analysis shows that saving ratio decreases with positive shocks to asset prices and increases with positive shocks to mortgage rates.

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File URL: https://mpra.ub.uni-muenchen.de/28023/1/MPRA_paper_28023.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28023.

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Date of creation: 05 Jan 2011
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Handle: RePEc:pra:mprapa:28023
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  1. Ben Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-128.
  2. Alan Greenspan & James Kennedy, 2008. "Sources and uses of equity extracted from homes," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 120-144, spring.
  3. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679.
  4. Saikkonen, Pentti & L├╝tkepohl, Helmut, 1998. "Testing for the cointegrating rank of a VAR process with an intercept," SFB 373 Discussion Papers 1998,51, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  5. Massimo Guidolin & Elizabeth A. La Jeunesse, 2007. "The decline in the U.S. personal saving rate: is it real and is it a puzzle?," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 491-514.
  6. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
  7. Yash P. Mehra, 1996. "Monetary policy and long-term interest rates," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 27-49.
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