ANNEX Data Sources and Definitions
The sample period for the estimations is from 1982 to 2001. The definition and sources for each variable are as follows:
Household saving rate is the ratio of household savings to personal disposable income. Sources: National Income and Outlay Accounts, Statistics New Zealand, New Zealand Treasury.
Private saving rate is the ratio of private sector savings (gross national savings minus public savings) to private sector disposable income which is derived as the sum of household disposable income and net of tax operating surplus plus subsidies. Sources: National Accounts, Statistics New Zealand, New Zealand Treasury, and staff estimates.
Government balance is the ratio of central government balance to GDP. Source: IMF World Economic Outlook database.
Pension and other income support is the ratio of social security and welfare payments per recipient to the per capita household disposable income. In the private savings equation, it is computed as a ratio to total government current expenditure. Sources: Social Welfare Benefits, Statistics New Zealand, and IMF Government Financial Statistics database.
Household net financial wealth is the ratio of household financial assets less liabilities to household disposable income. Source: Thorp (2002).
Housing value is the ratio of the value of housing to household disposable income. Source: Thorp (2002).
Credit card outstanding is the ratio of credit card debt outstanding to disposable income. For households, the credit card debt outstanding was estimated by applying the average ratio of household credit card debt outstanding to total credit card debt outstanding during the period for which such data are available (from June 2000 to October 2002). Source: Monetary aggregate data, Reserve Bank of New Zealand.
Dependency ratio is the ratio of population under 15 years and over 65 years to the working age population. Sources: Statistics New Zealand, New Zealand Treasury.
Inflation equals the percentage change in the consumer price index. Source: Statistics New Zealand.
Private sector net foreign liabilities equals the cumulative current account balance net of government overall balance as a ratio to GDP. Sources: Statistics New Zealand, IMF Government Financial Statistics database, and staff estimates.
Choy, W., 2000, “Determinants of New Zealand National and Household Saving Rates: A Cointegration Approach”, Unpublished paper, New Zealand Treasury.
Edwards, S. (1996), “Why Are Latin America’s Saving Rates so Low? An International Comparative Analysis”, Journal of Development Economics, Vol. 51, pp. 5–44.
Gibson, J. and G. Scobie, 2001, “Household Saving Behavior in New Zealand: A Cohort Analysis”, New Zealand Treasury Working Paper, 01/18.
Masson, S., T. Bayoumi and H. Samiei, (1998), “International Evidence on the Determinants of Private Saving”, The World Bank Economic Review, Vol. 12, No. 3, pp. 483–501.
Phillips, P. and B. Hansen, 1990, “Statistical Inference in Instrumental Variables Regression with 1(1) Processes”, Review of Economic Studies, Vol. 57, pp. 99–125.
Thorp, C., 2002, “Developments in Credit Markets Over Two Decades”, Reserve Bank of New Zealand: Bulletin, June, Vol. 65, No. 2, pp. 38–50.
Thorp, C., and B. Ung, 2001, “Recent Trends in Household Financial Assets and Liabilities”, Reserve Bank of New Zealand: Bulletin, June, Vol 64, No. 2, pp. 14–24
Prepared by Uma Ramakrishnan (Ext. 3-5413), who is available to answer questions.
In the absence of publicly provided health care, savings would generally be expected to be higher, as households would have to save more for precautionary purposes.
Another technical factor contributing to the low level in household savings is the definitional change in national savings between the 1968 System of National Accounts (SNA) and the revised 1993 version of the SNA. However, comparison of available data by both definitions (for the period from 1987 to 1999) indicates that the savings level shifted but the underlying trend did not change. In this paper, the 1968 SNA definition is used since a longer time series is available.
Some 85 percent of household liabilities are housing loans. Estimates of household loans used for business purposes are in the range of 10-20 percent of housing loans (whereby the business borrowing is secured on residential property).
For 2000, the estimated net real farm wealth, was about 17 percent of current net wealth (around NZ$40 billion).
The equations were estimated using the Phillips-Hansen fully modified OLS (FMOLS) procedure. This method estimates the long-run parameters by correcting for serial correlation in the residuals without having to explicitly specify the dynamics of the model. It is a valid procedure when there exists a single cointegration equation and when the explanatory variables are not themselves cointegrated. For details, see Phillips and Hansen (1990).
Explanations on the derivation of the variables used and sources for the data are provided in the Annex.
Inflation and the real interest rate variables were dropped in the final specification of the household savings equation because they were statistical insignificant, to keep a parsimonious specification.
The pension and income support variable is defined in a manner that the dependency ratio is effectively imbedded in it.
Another explanation could be that corporate profits may have been “overstated” in periods of high inflation from larger depreciation allowances and inventory valuation. This might also explain why inflation is a significant determinant of private savings but not household savings.
Gibson and Scobie (2001) find that savings behavior varies across households and a very large share of total household savings comes from a small number of high-income households. There is also some preliminary evidence in the paper that the tax and benefit system has treated different cohorts differently which may partly explain low savings rates among some cohorts.