The Interest Rate Effect on Private Saving : Alternative Perspectives
Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › Not applicable › peer-review
Author(s)
Related Research Unit(s)
Detail(s)
Original language | English |
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Article number | 1950002 |
Journal / Publication | Journal of International Commerce, Economics and Policy |
Volume | 10 |
Issue number | 1 |
Online published | 8 Feb 2019 |
Publication status | Published - Feb 2019 |
Link(s)
Abstract
Lowering the policy interest rate could stimulate consumption and investment while discouraging people from saving. However, such a move may also prompt people to save more to compensate for the low rate of return. Using the data of 135 countries from 1995 to 2014, we show that a low interest rate environment can yield different effects on private saving under different economic environments. The real interest rate affects private saving negatively if output volatility, old-age dependency, or financial development is above a certain threshold. Depending on a country's specific economic circumstances, these effects are significant for the economy - a four-percentage point decline in the real interest rate, which is approximately the same as one standard deviation for China, would lead to a 1.52 percentage point increase in the Chinese private saving rate. Further, when the real interest rate is below 1.1%, greater output volatility would lead to higher private saving in developing countries.
Research Area(s)
- financial development, Income effect of interest rate, old-age dependency, output volatility, substitution effect of interest rate
Citation Format(s)
The Interest Rate Effect on Private Saving : Alternative Perspectives. / Aizenman, Joshua; Cheung, Yin-Wong; Ito, Hiro.
In: Journal of International Commerce, Economics and Policy, Vol. 10, No. 1, 1950002 , 02.2019.Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › Not applicable › peer-review