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Frugality: Are We Fretting Too Much? Household Saving and Assets in the United States

Author/Editor: Abdih, Yasser | Tanner, Evan
Authorized for Distribution: September 1, 2009
Electronic Access: Free Full Text (PDF file size is 2,113KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: Household savings rates in the United States have recently crept up from all-time lows. Some have suggested that a shift toward frugality will hamper GDP growth-the Keynesian "paradox of thrift." We estimate that households compensate for a fall in their asset income by saving more out of their labor income, dollar-for-dollar. In the wake of the crisis, our model predicts that such primary savings will increase, but only temporarily and modestly, as household assets stabilize. As savings flows gradually accumulate, they help rebuild corporate net worth and hence firms' capacity to make capital investments. A timely return to pre-crisis levels of capital investment would require that U.S. households save substantially more than the model predicts, starting now. Hence, we should fret that our savings rates may be too low.
 
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Series: Working Paper No. 09/197
Subject(s): Asset prices | Economic models | Financial crisis | Household credit | Income | Investment | Private investment | Private savings | Private sector | Savings | Time series | United States
Author's keyword(s): Saving | net worth | cointegration | transversality | paradox of thrift
 
English  
    Published:   September 1, 2009        
            Format:   Paper
    Stock No:   WPIEA2009197   Pages:   51
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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