Household Savings Decision and Income Uncertainty

56 Pages Posted: 21 Sep 2010

See all articles by Martin Beznoska

Martin Beznoska

German Institute for Economic Research (DIW Berlin)

Richard R. Ochmann

German Institute for Economic Research (DIW Berlin)

Date Written: August 2010

Abstract

This paper empirically investigates the effects of changes in the interest rate as well as transitory income uncertainty on households' consumption-savings decision. Applying a structural demand model to German survey data, we estimate the uncompensated interest rate elasticity for savings, in line with the literature, to around zero. Accordingly, any policy-induced variation of net returns to savings is expected to have no significant effects on the level of savings. Moreover, we find significant effects of precautionary savings on the consumption-savings decision. As a result of a doubling of transitory income uncertainty, an average household increases savings by 4:4%. These effects vary by household composition and social status.

Keywords: Consumption-savings decision, interest rate elasticity of savings, income uncertainty

JEL Classification: D12, D91, E21

Suggested Citation

Beznoska, Martin and Ochmann, Richard R., Household Savings Decision and Income Uncertainty (August 2010). DIW Berlin Discussion Paper No. 1046, Available at SSRN: https://ssrn.com/abstract=1679727 or http://dx.doi.org/10.2139/ssrn.1679727

Martin Beznoska

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Richard R. Ochmann (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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