DP14662 Savings Rates: Up or Down?

Author(s): Guillermo Ordoñez, Facundo Piguillem
Publication Date: April 2020
Keyword(s): capital gains, Human Capital, Savings rates
JEL(s): E1, E2
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14662

It depends what we want to measure. Most literature has focused on observed flow of savings (per-period savings as fraction of GDP), which has declined persistently since 1980. Even though this decline means that fewer funds are available for investment in each period, it does not follow that the households' actual savings (underlying, not observed, savings determined by dynamic optimization) also go down. We theoretically link these two concepts, discuss the conditions under which they move in opposite directions, and show that indeed the actual savings rate has sharply increased since 1980.