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Frugality: Are We Fretting Too Much? Household Saving and Assets in the United States
Author: Mr. Evan C Tanner and Mr. Yasser Abdih
Series:
IMF Working Papers
Volume/Issue:
Volume 2009: Issue 197
Language:
English
Publication Date:
01 Sep 2009
DOI:
https://doi.org/10.5089/9781451873443.001
ISBN:
9781451873443
ISSN:
1018-5941
Pages:
51
Keywords:
WP; rate of return
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Household savings rates in the United States have recently crept up from all-time lows. Some have suggested that a shift toward frugality will hamper GDP growth-the Keynesian "paradox of thrift." We estimate that households compensate for a fall in their asset income by saving more out of their labor income, dollar-for-dollar. In the wake of the crisis, our model predicts that such primary savings will increase, but only temporarily and modestly, as household assets stabilize. As savings flows gradually accumulate, they help rebuild corporate net worth and hence firms' capacity to make capital investments. A timely return to pre-crisis levels of capital investment would require that U.S. households save substantially more than the model predicts, starting now. Hence, we should fret that our savings rates may be too low.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund