Cyprus: Selected Issues
IMF Staff Country Reports, October 22, 2014
Source details
- Canonical URL
- Cyprus: Selected Issues
Other formats
Bibliographic details
- Published: October 22, 2014
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781498371018.002
Purpose and approach
- Models the evolution of the saving rate to help shed light on its determinants and to inform medium-term projections.
- Uses macro-level regression analysis linking household net wealth and unemployment to the saving rate.
- Lacks micro-level data; distributional aspects of wealth and heterogeneity in household responses are not explored.
Key findings
- Household net wealth and unemployment are identified as key determinants of the saving rate in Cyprus.
- Cypriot households dissaved in the period preceding the global crisis as wealth increased and credit financed consumption.
- Data uncertainty may affect regression results due to:
- Various data sources used.
- Relatively short time-period.
- Endogeneity concerns:
- Endogeneity between household wealth and the saving rate may not have been fully controlled through lags.
- Endogeneity between unemployment and the saving rate may not have been fully controlled through lags.
- Distributional caveat:
- Wealth is likely distributed unevenly; high indebted households with limited wealth are likely to reduce their saving rate more than the average to support consumption in the face of economic stress.
- Projections caveat:
- Forward-looking projections are subject to considerable uncertainty and should be interpreted with care.
Policy implications and considerations
- Monitoring household net wealth and unemployment is important for assessing saving behavior and medium-term consumption dynamics.
- Data improvements:
- Enhance data sources and lengthen time-series to reduce uncertainty in econometric estimates.
- Collect micro-level household data to assess distributional impacts and heterogeneity in saving responses.
- Analytical robustness:
- Address endogeneity more fully (beyond lagged controls) to strengthen causal inference between wealth, unemployment, and saving.
- Cautious use of projections:
- Use forward-looking saving-rate projections with caution given considerable uncertainty.
Subject tags and keywords (as provided)
- Subject: Expenditure, Fiscal policy, Fiscal stance, Housing prices, Labor, Potential output, Prices, Production, Wages
- Keywords: CR, Cyprus, Europe, Fiscal stance, Global, house price, Housing prices, IMF staff estimate, ISCR, Potential output, price, production-function approach, saving rate, valuation gap, Wages
Content in this bundle
- Cyprus: Selected Issues; IMF Country Report 14/314; October 3, 2014