Transcript Euro lessons

Changes in measurement of savings:
Perspectives from a consumer (of NA
data)
Alain de Serres*
OECD
Florian Pelgrin *
Bank of Canada
* Personal views, not to be attributed to the OECD or Bank of Canada.
Motivation for adjusting saving rates:
cross-section dimension

Direct international comparability of
saving levels: cross-sectional
dimension
 Large
cross-country differences in saving
rates not fully understood
 May reflect institutional rather than
differences in behaviour or preferences
 May matter for investment, productive
capacity, growth
How to deal with the problems in panel data
analysis



Use country-specific constant terms to
control for cross-country institutional or
measurement differences (SFE):
works only if differences remain more or
less constant over time
could results in biased estimates and
misleading conclusions
3
Motivation for adjusting saving rates:
time series dimension


Properly identify the behavioural
response of private agents to changes in
economic incentives (relative prices,
taxes, income, etc.)
Change in a potential determinant of
saving over time may induce shift in
measured saving even in absence of
behavioural response
 re-valuation
of financial assets may
exaggerate wealth effects
TABLE 1. SELECTED EMPIRICAL PANEL STUDIES ON SAVING RATES IN OECD
COUNTRIES
Authors
Sample
Method
36 countries (including
12 OECD countries)
Instrumental variable
s techniques
What are the determinants of
private and public savings?
Callen and
Thimann (1997)
(1970 – 1992)
21 OECD countries
(1975 – 1995)
Cross-sections and
Static Fixed Effects
Have public policies an impact on
the household saving decisions?
Masson, Bayoumi
and Samiei (1998)
21 OECD countries
(1971 - 1993)
Cross-sections and
Static Fixed Effects
What are the determinants of
private savings to GDP?
Haque, Pesaran and
Sharma (1999)
21 OECD countries
(1971 – 1993)
Pooled Mean Group,
Mean Group and
Static Effects
How can neglected heterogeneity
and neglected dynamics affect
inference about the key
determinants of savings
behaviour?
Loayza,
Schmidt-Hebbel
and Serven (2000)
20 OECD countries
(1966 – 1995)
GMM, Systems
Estimators
What are the determinants of
national and private savings?
Edwards (1995)
Interest
5
Adjustments discussed / proposed

INSEE paper:
individually
identifiable consumption
indirect taxes
pension saving
consumption of fixed capital
 consumer durables
6
Adjustments discussed / proposed

BEA paper:
Defined
benefit pension plans
Inflation
Taxation
of capital gains
consumer durables
7
Two complementary sets of adjusted
series for US personal saving rates


Study by OFCE on comparison of
saving rates between US and France
(Baudchon and Chauvin, 1999)
BEA study (Perozek and Reinsdorf,
2002)
8
Broad motives for household saving




Retirement and bequests (LCH)
Smooth consumption over time (LCH
or PIH)
Unexpected loss of income
(precautionary)
Financing of large lifetime
expenditures (Durables?)
9
Basic determinants in empirical work







government gross / net saving ratio
net public transfers to households
growth in GDP per capita
old-age dependency ratio
real interest rate
inflation
financial and non-financial wealth
10
Empirical analysis can be affected by
accounting conventions

Capital gains/ losses
 induce
wealth effect when there is none
 boost impact of inflation
 affect inter-sectoral allocation of saving
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Table 1 A. Effects of adjustment on long-run parameters
OFCE adjustments
Variables
Public saving
Net transfers
Inflation rate
Real interest rate
Net financial wealth
Net non financial wealth
Growth in GDP per
capita
Memorandum
Adjusted R-square
Durbin-Watson
NIPA
DEPRECIATION
-0.350**
(0.139)
-0.956***
(0.246)
0.604***
(0.108)
0.198**
(0.077)
-0.014**
(0.007)
-0.061***
(0.013)
-----
-0.342**
(0.144)
-0.850***
(0.254)
0.646***
(0.111)
0.229***
(0.079)
-0.015**
(0.007)
-0.051***
(0.014)
------
PUBLIC GOODS
CONSUMPTION
-0.312**
(0.133)
-0.792***
(0.235)
0.589***
(0.102)
0.222***
(0.073)
-0.014**
(0.006)
-0.045***
(0.012)
-------
0.90
1.66
0.90
1.63
0.90
1.63
INDIRECT
TAXES
-0.360**
(0.153)
-0.937***
(0.271)
0.692***
(0.118)
0.246***
(0.084)
-0.015*
(0.007)
-0.058***
(0.014)
------
0.90
1.61
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TABLE 1 B. Effect of adjustment on long-run parameter
BEA adjustments
Variables
Public saving
Net transfers
Inflation rate
Real interest rate
Net financial wealth
Net non financial wealth
Growth in GDP per
capita
Memorandum
Adjusted R-square
Durbin-Watson
NIPA
CAPITAL GAINS
-0.350**
(0.139)
-0.956***
(0.246)
0.604***
(0.108)
0.198**
(0.077)
-0.014**
(0.007)
-0.061***
(0.013)
-----
-0.426***
(0.151)
-1.040***
(0.268)
0.590***
(0.117)
0.186**
(0.083)
-0.009
(0.007)
-0.058***
(0.014)
------
DEFINED BENEFIT
PENSION
-0.390**
(0.153)
-0.577**
(0.271)
0.435***
(0.118)
0.131
(0.084)
-0.009
(0.007)
-0.044***
(0.014)
------
0.90
1.66
0.87
1.66
0.80
1.41
INFLATION
-0.320*
(0.171)
-0.613**
(0.303)
0.451***
(0.132)
0.284***
(0.094)
-0.016*
(0.009)
-0.060***
(0.016)
------
0.82
1.47
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TABLE 1 C. Effect of adjustment on long-run parameters
(Consumer Durables)
Variables
Public saving
Net transfers
Inflation rate
Real interest rate
Net financial wealth
Net non financial wealth
Growth in GDP per
capita
Memorandum
Adjusted R-square
Durbin-Watson
NIPA
-0.350**
(0.139)
-0.956***
(0.246)
0.604***
(0.108)
0.198**
(0.077)
-0.014**
(0.007)
-0.061***
(0.013)
-----
0.90
1.66
CONSUMER
DURABLES -- BEA
-0.586***
(0.091)
-1.137***
(0.239)
0.584***
(0.079)
0.171**
(0.085)
-----
CONSUMER
DURABLES -- OFCE
-0.537***
(0.076)
-1.371***
(0.199)
0.703***
(0.066)
0.075
(0.071)
-----
GROSS PRIVATE
SAVING
-0.417***
(0.068)
------
-0.042***
(0.015)
0.136*
(0.081)
-0.043***
(0.012)
0.309***
(0.067)
-0.018*
(0.010)
0.249***
(0.056)
0.83
1.68
0.90
2.01
0.87
1.76
0.663***
(0.059)
0.220***
(0.063)
-----
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TABLE 2 - Effect of adjustment on short run parameters
Variables
Inflation rate
Real interest rate
Net financial wealth
Net non financial wealth
Error correction term
NIPA
CAPITAL GAINS
DEFINED BENEFIT
PENSION
INFLATION
0.351***
(0.113)
0.135*
(0.074)
-0.022***
(0.006)
-0.056**
(0.023)
-0.744***
(0.198)
0.342**
(0.140)
0.099
(0.091)
-0.012
(0.008)
-0.071**
(0.028)
-0.676***
(0.245)
0.371***
(0.129)
0.145*
(0.083)
-0.012
(0.007)
-0.070**
(0.026)
-0.707***
(0.026)
0.310*
(0.152)
0.189*
(0.010)
-0.013
(0.008)
-0.082**
(0.016)
-0.695***
(0.031)
0.56
1.75
0.33
1.76
0.43
1.55
0.36
1.53
Memorandum
Adjusted R-square
Durbin-Watson
15
Nature of the problem:

Try to explain movements in broad
aggregates on the basis of:

Theory that applies to individual agents
Concepts
that can not always be easily
matched in National Accounts
16
Raises a number of issues


How far should one go in aggregation across
agents or economic units with heterogeneous
characteristics
Increase the risks of inter-sectoral
reallocation induced by accounting
conventions
Nature of the trade-off



Desirable to raise correspondence
between between theoretical concept (or
economic unit) and measure...
…but only to the extent that the cost in
terms of adding new sources of
measurement errors is limited…
…and that adjusted series can be
retropolated sufficiently far back to allow
for statistical analysis
Overall assessment



Development of a more comparable/
harmonised series of household saving
across countries is desirable
Control for main institutional differences
Complement rather than a substitute for
current series
19
Reservations -- Durables



Controlling for consumer durables appear
to be trickier with far reaching implications
-- sensitivity to assumptions
Not useful if purpose is to assess funds
available to expand business capital
stock
May be useful to assess models of
household behaviour
20
Reservations -- capital gains



Not useful to add capital gains to income:
adds too much noise
Adjustment for taxes paid on capital
gains, inflation and DB plan is useful
Better to work on a comparable measure
of financial and non-financial wealth
21
Net financial wealth and cumulation of saving rates -- USA
3.5
3
2.5
Financial wealth
2
1.5
1
Cumul. saving
0.5
19
80
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81
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82
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83
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84
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85
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86
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87
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94
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95
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96
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98
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99
20
00
20
01
0
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Net financial wealth and cumulation of saving rates --Japan
3
2.5
Cumul. saving
2
1.5
1
Financial wealth
0.5
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
0
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