Household Savings Decision and Income Uncertainty

Discussion Papers 1046, 53 S.

Martin Beznoska, Richard Ochmann

2010

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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.



JEL-Classification: D12;D91;E21
Keywords: Consumption-savings decision, interest rate elasticity of savings, income uncertainty
Frei zugängliche Version: (econstor)
http://hdl.handle.net/10419/49434