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Prepared by André Meier.
Private saving is computed as a double residual, from balance of payments, investment, and public finance data. As a result, saving data inherit and probably compound the existing weaknesses of those data sources, such as the implausibly high level of inventory investment in Turkey’s national accounts. Moreover, a breakdown into household or corporate saving is not available.
In particular, we lack data on house prices (a possible source of wealth effects) and income expectations. The latter would be a valuable regressor, as modern consumption models imply an important role for expected future growth. Still, to the extent that recent high growth expectations derive from improved macroeconomic stability, it could be argued that their effect is at least indirectly captured in the regression. Another inevitable limitation of our exercise is the small number of annual observations available for the regression variables.
This statement is about statistical association and should not be construed as a causal attribution, given the joint endogeneity of the relevant variables. Instrumental variable (IV) techniques are not a promising solution, as valid instruments are elusive. Nonetheless, in trying to cope with one possible cause of endogeneity, i.e., measurement error in public saving data, we also ran IV regressions using lags of public saving as instruments. Although this increased standard errors, the qualitative evidence on the impact of public saving was unchange.
There is, however, some evidence that psychological aspects, such as the framing or packaging of retirement saving options, can have a sizable impact on individuals’ saving decisions. See Beshears et al. (2006).