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Changes in measurement of savings: Perspectives from a consumer (of NA data) Alain de Serres* OECD Florian Pelgrin * Bank of Canada * Personal views, not.

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Presentation on theme: "Changes in measurement of savings: Perspectives from a consumer (of NA data) Alain de Serres* OECD Florian Pelgrin * Bank of Canada * Personal views, not."— Presentation transcript:

1 Changes in measurement of savings: Perspectives from a consumer (of NA data) Alain de Serres* OECD Florian Pelgrin * Bank of Canada * Personal views, not to be attributed to the OECD or Bank of Canada.

2 Motivation for adjusting saving rates: cross-section dimension n Direct international comparability of saving levels: cross-sectional dimension u Large cross-country differences in saving rates not fully understood u May reflect institutional rather than differences in behaviour or preferences u May matter for investment, productive capacity, growth

3 3 How to deal with the problems in panel data analysis n Use country-specific constant terms to control for cross-country institutional or measurement differences (SFE): n works only if differences remain more or less constant over time n could results in biased estimates and misleading conclusions

4 Motivation for adjusting saving rates: time series dimension n Properly identify the behavioural response of private agents to changes in economic incentives (relative prices, taxes, income, etc.) n Change in a potential determinant of saving over time may induce shift in measured saving even in absence of behavioural response u re-valuation of financial assets may exaggerate wealth effects

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6 6 Adjustments discussed / proposed n INSEE paper: u individually identifiable consumption u indirect taxes u pension saving u consumption of fixed capital u consumer durables

7 7 Adjustments discussed / proposed n BEA paper: u Defined benefit pension plans u Inflation u Taxation of capital gains u consumer durables

8 8 Two complementary sets of adjusted series for US personal saving rates n Study by OFCE on comparison of saving rates between US and France (Baudchon and Chauvin, 1999) n BEA study (Perozek and Reinsdorf, 2002)

9 9 Broad motives for household saving n Retirement and bequests (LCH) n Smooth consumption over time (LCH or PIH) n Unexpected loss of income (precautionary) n Financing of large lifetime expenditures (Durables?)

10 10 Basic determinants in empirical work n government gross / net saving ratio n net public transfers to households n growth in GDP per capita n old-age dependency ratio n real interest rate n inflation n financial and non-financial wealth

11 11 Empirical analysis can be affected by accounting conventions n Capital gains/ losses u induce wealth effect when there is none u boost impact of inflation u affect inter-sectoral allocation of saving

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16 16 Nature of the problem: n Try to explain movements in broad aggregates on the basis of: u Theory that applies to individual agents u Concepts that can not always be easily matched in National Accounts

17 Raises a number of issues n How far should one go in aggregation across agents or economic units with heterogeneous characteristics n Increase the risks of inter-sectoral reallocation induced by accounting conventions

18 Nature of the trade-off n Desirable to raise correspondence between between theoretical concept (or economic unit) and measure... n …but only to the extent that the cost in terms of adding new sources of measurement errors is limited… n …and that adjusted series can be retropolated sufficiently far back to allow for statistical analysis

19 19 Overall assessment n Development of a more comparable/ harmonised series of household saving across countries is desirable n Control for main institutional differences n Complement rather than a substitute for current series

20 20 Reservations -- Durables n Controlling for consumer durables appear to be trickier with far reaching implications -- sensitivity to assumptions n Not useful if purpose is to assess funds available to expand business capital stock n May be useful to assess models of household behaviour

21 21 Reservations -- capital gains n Not useful to add capital gains to income: adds too much noise n Adjustment for taxes paid on capital gains, inflation and DB plan is useful n Better to work on a comparable measure of financial and non-financial wealth

22 22 Cumul. saving Financial wealth

23 23 Financial wealth Cumul. saving


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