An Explanation of the Behavior of Personal Savings in the United States in Recent Years / Eytan Sheshinski, Vito Tanzi.

Format:

Book

Author/Creator:

Sheshinski, Eytan.

Contributor:

National Bureau of Economic Research.

Tanzi, Vito.

Series:

Working Paper Series (National Bureau of Economic Research) no. w3040.

NBER working paper series no. w3040

Language:

English

Subjects (All):

Interest rates.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1989.

Cambridge, Mass : National Bureau of Economic Research, 1989.

Summary:

A sharp increase in the real interest rates in the U.S. in the 1980s was expected to induce a higher personal saving rate. Actually, between 1981 and 1983 the personal saving rate fell from 7.5 percent to 5.4 percent and for the 1985-1988 period it had averaged only 4 percent even though real interest rates have remained high. We argue that one possible explanation for this negative relation between interest rates and the personal saving rate is the large fraction of wealth, especially financial wealth, held by persons over 65 years old (this group has received more than 50 percent of all interest income in the U.S. during this period). Life cycle theory suggests, as we demonstrate, that the wealth effect created by an increase in the rate of interest reduces the savings of old persons and raises savings of the young and hence the effect on aggregate savings depends on the age distribution in the population.

Notes:

Print version record

July 1989.