Scandinavian Working Papers in Economics
Memorandum,
Oslo University, Department of Economics
No 11/2015: Did US consumers `save for a rainy day' before the Great Recession?
Andre K. Anundsen () and Ragnar Nymoen ()
Additional contact information
Andre K. Anundsen: Norges Bank, Postal: Bankplassen 2 , P.O. Box 1179 Sentrum , NO-0107 Oslo , Norway.
Ragnar Nymoen: Economic Analysis Norway - Center for Wage formation, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
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: Cointegration; Consumption; Granger causality; Permanent income hypothesis; Household saving
JEL-codes: C22; C32; C51; C52; E21; E62
50 pages, May 8, 2015
Full text files
memo-11-2015.pdf
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