Savings and Saving Rates: Up or Down?
It depends what we want to measure. Most literature has focused on observed flow of savings (per-period savings as fraction of GDP), which has declined persistently since 1980. Even though this decline means that fewer funds are available for investment in each period, it does not follow that the households’ actual savings (underlying, not observed, savings determined by dynamic optimization) also go down. We theoretically link these two concepts, discuss the conditions under which they move in opposite directions, and show that indeed the actual savings has sharply increased since 1980.
We thank Dirk Krueger and Jim Poterba for comments. The usual waiver of liability applies. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.