IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Do savings promote or hamper economic growth? The Euro area example

  • De Koning, Kees

Individual households save out of income by postponing consumption. Such savings are used not only by companies to expand production or by some individual households to increase consumption through borrowings: the economic use of savings. For instance in the U.S. in 2005 and 2006 65.5% of the savings allocated to home mortgages were used to increase prices of existing homes over and above the CPI inflation levels. Such use of savings can be called the financial use of savings. Other examples of such financial use are government debt outstanding for longer than a year and share price increases after companies have received the proceeds from share listings. The difference between the financial and economic use of savings is that the first category does not help output and employment growth. There are periods over an economic cycle that the financial use of savings increase, for instance through house or share price inflation. There is no guiding hand to stop this process early enough to stop the subsequent savings destruction process. The latter process is further complicated by governments’ extensive use of debt financing during the re-balancing period. Government debt outstanding for over a year does not contribute to output or employment growth: it is again a financial use of savings. The long adjustment period since 2008, which is far from over for the Euro area countries, shows that fiscal and monetary policies have been very slow in getting unemployment levels down. The main reason is not that there is a lack of savings, but that on a temporary basis the savings allocation process needs to be re-balanced away from its financial and towards its economic use. Why and how this could be done is the subject of this study. The Euro area was chosen as an example as youth unemployment and overall unemployment rates are at historical highs, share prices are still far below 2008 levels and house prices with the exception of Germany and Austria have hit a seven year low.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://mpra.ub.uni-muenchen.de/52533/1/MPRA_paper_52533.pdf
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 52533.

as
in new window

Length:
Date of creation: 27 Dec 2013
Date of revision:
Handle: RePEc:pra:mprapa:52533
Contact details of provider: Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. De Koning, Kees, 2013. "The world's dream, economic growth revisited," MPRA Paper 50190, University Library of Munich, Germany.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:52533. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.