Abstract
Authors of Working Papers are normally staff members of the Fund or consultants, although on occasion outside authors may collaborate with a staff member in writing a paper. The views expressed in the Working Papers or their summaries are, however, those of the authors and should not necessarily be interpreted as representing the views of the Fund. Copies of individual Working Papers and information on subscriptions to the annual series of Working Papers may be obtained from IMF Publication Services, International Monetary Fund, 700 19th Street, Washington, D.C. 20431. Telephone: (202) 623-7430 Telefax: (202) 623-7201 This compilation of summaries of Working Papers released during July-December 1994 is being issued as a part of the Working Paper series. It is designed to provide the reader with an overview of the research work performed by the staff during the period.
In recent years, the household saving ratio in France has increased substantially, offsetting some of the decline in the saving ratio that occurred during the 1980s. This paper investigates the roles of two factors in accounting for recent saving behavior in France. First, the deterioration in labor market conditions may have created a precautionary demand for saving by households wishing to insure themselves (by accumulating assets, or saving) against potentially large (adverse) income shocks (for example, becoming unemployed). Second, financial deregulation may have increased the sensitivity of households to movements in real interest rates, so that relatively high real rates would elicit larger increases in saving than in the past.
To investigate the first hypothesis, the paper estimates a permanent-income model of household consumption that has been augmented to include the effects of the variability of household labor income. In such a model, saving rises whenever the mean of household income is expected to decline over time (”saving for a rainy day”) and whenever the variance of household income is expected to rise (precautionary saving). This augmented permanent-income model tracks recent developments in household saving remarkably well. However, the “saving for a rainy day” component of saving seems to play a much more significant role in recent developments than the precautionary motive. Specifically, reductions in expected future income growth seem to be quantitatively much more important than increases in the expected variability of income in accounting for recent saving behavior.
On the effects of financial deregulation, the paper finds support for the view that the interest rate elasticity of household saving has increased significantly as a result of deregulation. Indeed, as a quantitative matter, the results suggest that recent high levels of real interest rates in France have played a significant role in stimulating household saving.