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What Caused the Decline in the US Saving Ratio?

Author

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  • Paradiso, Antonio
  • Rao, B. Bhaskara

Abstract

We investigate whether the mortgage equity withdrawal (MEW) mechanism is useful for explaining the large declines in the US personal saving ratio in the last two decades. MEW depends on house price inflation and mortgage rates. In addition stock prices may affect saving ratio. Therefore, we estimate a VEC model with these four variables. The impulse response analysis shows that saving ratio decreases with positive shocks to asset prices and increases with positive shocks to mortgage rates.

Suggested Citation

  • Paradiso, Antonio & Rao, B. Bhaskara, 2011. "What Caused the Decline in the US Saving Ratio?," MPRA Paper 28023, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:28023
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    References listed on IDEAS

    as
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    4. Ben S. Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Economic Review, Federal Reserve Bank of Kansas City, vol. 84(Q IV), pages 17-51.
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    6. Massimo Guidolin & Elizabeth A. La Jeunesse, 2007. "The decline in the U.S. personal saving rate: is it real and is it a puzzle?," Review, Federal Reserve Bank of St. Louis, vol. 89(Nov), pages 491-514.
    7. Yash P. Mehra, 1996. "Monetary policy and long-term interest rates," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 27-49.
    8. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679.
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    More about this item

    Keywords

    Saving ratio MEW VEC asset prices interest rates;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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