11 Pages Posted: 28 Sep 2009
Date Written: September 21, 2009
Household decisions on whether to save or spend play a key role in the outlook for aggregate demand. A range of factors could help to explain the fall in the household saving ratio over the period 1995 to 2007. Declines in long-term real interest rates, looser credit conditions, rising asset values and greater macroeconomic stability are all likely to have reduced the incentive or the need to save. Lower household saving was also offset to some extent by higher corporate saving. Since 2007, the financial crisis and subsequent recession have unwound some of these factors and may continue to lead to a rise in household saving.
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