Did US Consumers 'Save for a Rainy Day' Before the Great Recession?

50 Pages Posted: 10 Jun 2015

See all articles by André K. Anundsen

André K. Anundsen

Norges Bank; University of Oslo

Ragnar Nymoen

University of Oslo - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 8, 2015

Abstract

The ‘saving for a rainy day’ hypothesis implies that households’ saving decisions reflect that they can (rationally) predict future income declines. The empirical relevance of this hypothesis plays a key role in discussions of fiscal policy multipliers and it holds under the null that the permanent income hypothesis is true. We find mixed support for this hypothesis using time series data for the 100 largest US Metropolitan Statistical Areas, as well as aggregate macro time series, for the period 1980q1–2011q4. That is, income is more often found to predict consumption and saving than the converse. Our modus operandi is to investigate the ‘saving for a rainy day’ hypothesis by testing (weak) exogeneity of income and consumption and by exploring the direction of Granger causality between the two series. We also give evidence that house price changes played a role in the US income and consumption dynamics, before, during and after the Great Recession.

Keywords: Cointegratio, Consumption, Granger causality, Permanent income hypothesis, Household saving

JEL Classification: C22, C32, C51, C52, E21, E62

Suggested Citation

Anundsen, Andre Kallak and Anundsen, Andre Kallak and Nymoen, Ragnar, Did US Consumers 'Save for a Rainy Day' Before the Great Recession? (May 8, 2015). Norges Bank Working Paper 08 | 2015, Available at SSRN: https://ssrn.com/abstract=2616798 or http://dx.doi.org/10.2139/ssrn.2616798

Andre Kallak Anundsen (Contact Author)

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

University of Oslo ( email )

PO Box 6706 St Olavs plass
Oslo, 0130
Norway

Ragnar Nymoen

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

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