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Public and private saving and the long shadow of macroeconomic shocks

Listed author(s):
  • Aizenman, Joshua
  • Noy, Ilan

The global crisis of 2008-9 and the ongoing Euro crisis raise many questions regarding the long-term response to crises. We know that households that lost access to credit, for example, were forced to adjust and increase saving. But, will households remain bigger savers than they would have been had the global financial crisis not occurred? And for how long will this increased saving persist? We also ask similar questions about the public sector’s saving decisions. We study the degree to which past income crises increase the saving rates of affected households and the public sector. We find evidence consistent with history-dependent dynamics: more experience of past crises tends to increase savings among households, but lead to decreased public sector saving. This decrease in public saving, however, is about 1/3 in magnitude than the corresponding increase in private/household saving. We follow up on these findings with an investigation of the importance of historical exposure for current account dynamics, but find no strong indication that our measure of past exposure is important to the current account’s determination. We conclude by examining the likely impact of the 2008-9 GFC on future saving.

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File URL: http://researcharchive.vuw.ac.nz/handle/10063/2776
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Paper provided by Victoria University of Wellington, School of Economics and Finance in its series Working Paper Series with number 2776.

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Date of creation: 2013
Handle: RePEc:vuw:vuwecf:2776
Contact details of provider: Postal:
Alice Fong, Administrator, School of Economics and Finance, Victoria Business School, Victoria University of Wellington, PO Box 600 Wellington, New Zealand

Phone: +64 (4) 463-5353
Fax: +64 (4) 463-5014
Web page: http://www.victoria.ac.nz/sef
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