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The determinants of household saving behaviour in Malta

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  • Gatt, William

Abstract

This study analyses the determinants of the aggregate household saving rate in Malta; an important macroeconomic variable which in standard short-term analysis is considered as a ‘residual’. The aggregate household saving rate, fluctuated significantly over the past thirteen years, rising from 6.4% in 2000 to 10.3% by 2002, falling significantly to 4.1% by 2006, doubling to 8.4% during 2007 and stabilising between 5% and 7% in the years 2008 to 2012. Such sharp swings warrant an investigation to uncover the underlying drivers, and this paper finds evidence that the estimate of the saving rate correlates with a set of macroeconomic variables The results of an estimated equation are in line with the theory and robust to different estimation techniques. One should keep in mind that there are no official statistics on disposable income and therefore this paper uses an in-house estimate of disposable income, which may be subject to measurement errors. It results that developments in bank deposit rates played a major role in driving the saving rate over the period of interest. In addition it appears that households tended to be somewhat ‘Ricardian’ by increasing their saving following a deterioration in the government budget deficit, although only around a third of changes in public savings were offset with a corresponding change in household saving. The absence of complete Ricardian equivalence is in line with other studies on the Maltese economy. An element of precautionary saving, a feature at the heart of the literature surveyed, was also observed. Faced with uncertainty, households attempt to keep a buffer stock of wealth proportional to their income as a means of ‘saving for a rainy day’. In the context of a falling fertility rate over the past forty years and an ageing population, demographic factors do not seem to have had an influence on saving decisions over the period covered in this study, even though they are bound to have some impact in the coming years through a lower household saving rate, unless corrective actions are taken.

Suggested Citation

  • Gatt, William, 2014. "The determinants of household saving behaviour in Malta," MPRA Paper 57707, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:57707
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    References listed on IDEAS

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    1. Jordi Galí & J. David López-Salido & Javier Vallés, 2007. "Understanding the Effects of Government Spending on Consumption," Journal of the European Economic Association, MIT Press, vol. 5(1), pages 227-270, March.
    2. Christopher Carroll & Martin Sommer & Jiri Slacalek, 2012. "Dissecting Saving Dynamics; Measuring Wealth, Precautionary, and Credit Effects," IMF Working Papers 12/219, International Monetary Fund.
    3. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78-121.
    4. Christopher D. Carroll & Patrick Toche, 2009. "A Tractable Model of Buffer Stock Saving," NBER Working Papers 15265, National Bureau of Economic Research, Inc.
    5. Grech, Aaron George & Grech, Owen & Micallef, Brian & Rapa, Noel & Gatt, William, 2013. "A Structural Macro-Econometric Model of the Maltese Economy," MPRA Paper 46128, University Library of Munich, Germany.
    6. Florian Pelgrin & Alain de Serres, 2003. "The Decline in Private Saving Rates in the 1990s in OECD Countries: How Much Can Be Explained by Non-wealth Determinants?," OECD Economic Studies, OECD Publishing, vol. 2003(1), pages 117-153.
    7. Tim Callen & Christian Thimann, 1997. "Empirical Determinants of Household Saving; Evidence From OECD Countries," IMF Working Papers 97/181, International Monetary Fund.
    8. Grech, Aaron George, 2000. "The private and public savings gaps in Malta and their impact on the current account," MPRA Paper 33208, University Library of Munich, Germany.
    9. Masson, Paul R & Bayoumi, Tamim & Samiei, Hossein, 1998. "International Evidence on the Determinants of Private Saving," World Bank Economic Review, World Bank Group, vol. 12(3), pages 483-501, September.
    10. Felix Hüfner & Isabell Koske, 2010. "Explaining Household Saving Rates in G7 Countries: Implications for Germany," OECD Economics Department Working Papers 754, OECD Publishing.
    11. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-618, Nov.-Dec..
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    Cited by:

    1. Aaron G Grech & Noel Rapa, "undated". "Trends in Malta’s current account and their underlying causes," CBM Policy Papers PP/03/2016, Central Bank of Malta.

    More about this item

    Keywords

    Saving rate; precautionary savings; real deposit rate; incomplete Ricardian offset;

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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