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Targets, Interest Rates, and Household Saving in Urban China
Author:
Mr. Malhar S Nabar
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Series:
IMF Working Papers
Volume/Issue:
Volume 2011: Issue 223
Language:
English
Publication Date:
01 Oct 2011
DOI:
https://doi.org/10.5089/9781463904258.001
ISBN:
9781463904258
ISSN:
1018-5941
Pages:
29
Keywords:
WP; saving rate; household saving; savings impulse; saving-investment imbalance; China; Target Savings; Financial Liberalization; saving response; precautionary saving motive; Real interest rates; Income; Disposable income; Land prices; Consumption; Global
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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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This paper studies a panel of China's provinces over the period 1996-2009 during which urban household saving rates increased from 19 percent of disposable income to 30 percent. It finds that the increase in urban saving rates is negatively associated with the decline in real interest rates over this period. This negative association suggests that Chinese households save with a target level of saving in mind. When the return to saving declines (increases), it becomes more difficult (easier) to meet a target and households increase (lower) their saving out of current disposable income to compensate. The results are robust across specifications and to the inclusion of additional variables. A main policy implication is that an increase in real deposit rates may help lower household saving and boost domestic consumption.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund