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

3

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

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

5

TABLE 1. SELECTED EMPIRICAL PANEL STUDIES ON SAVING RATES IN OECDCOUNTRIES

Authors Sample Method Interest

Edwards (1995) 36 countries (including12 OECD countries)

(1970 – 1992)

Instrumental variables techniques

What are the determinants ofprivate and public savings?

Callen andThimann (1997)

21 OECD countries(1975 – 1995)

Cross-sections andStatic Fixed Effects

Have public policies an impact onthe household saving decisions?

Masson, Bayoumiand Samiei (1998)

21 OECD countries(1971 - 1993)

Cross-sections andStatic Fixed Effects

What are the determinants ofprivate savings to GDP?

Haque, Pesaran andSharma (1999)

21 OECD countries(1971 – 1993)

Pooled Mean Group,Mean Group andStatic Effects

How can neglected heterogeneityand neglected dynamics affectinference about the keydeterminants of savingsbehaviour?

Loayza,Schmidt-Hebbeland Serven (2000)

20 OECD countries(1966 – 1995)

GMM, SystemsEstimators

What are the determinants ofnational and private savings?

6

Adjustments discussed / proposed

INSEE paper: individually identifiable consumption indirect taxes pension saving consumption of fixed capital consumer durables

7

Adjustments discussed / proposed

BEA paper: Defined benefit pension plans Inflation Taxation of capital gains consumer durables

8

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)

9

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?)

10

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

11

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

12

Table 1 A. Effects of adjustment on long-run parametersOFCE adjustments

Variables NIPA DEPRECIATION PUBLIC GOODSCONSUMPTION

INDIRECT TAXES

Public saving -0.350**(0.139)

-0.342**(0.144)

-0.312**(0.133)

-0.360**(0.153)

Net transfers -0.956***(0.246)

-0.850***(0.254)

-0.792***(0.235)

-0.937***(0.271)

Inflation rate 0.604***(0.108)

0.646***(0.111)

0.589***(0.102)

0.692***(0.118)

Real interest rate 0.198**(0.077)

0.229***(0.079)

0.222***(0.073)

0.246***(0.084)

Net financial wealth -0.014**(0.007)

-0.015**(0.007)

-0.014**(0.006)

-0.015*(0.007)

Net non financial wealth -0.061***(0.013)

-0.051***(0.014)

-0.045***(0.012)

-0.058***(0.014)

Growth in GDP percapita

----- ------ ------- ------

MemorandumAdjusted R-square 0.90 0.90 0.90 0.90Durbin-Watson 1.66 1.63 1.63 1.61

13

TABLE 1 B. Effect of adjustment on long-run parameterBEA adjustments

Variables NIPA CAPITAL GAINS DEFINED BENEFITPENSION

INFLATION

Public saving -0.350**(0.139)

-0.426***(0.151)

-0.390**(0.153)

-0.320*(0.171)

Net transfers -0.956***(0.246)

-1.040***(0.268)

-0.577**(0.271)

-0.613**(0.303)

Inflation rate 0.604***(0.108)

0.590***(0.117)

0.435***(0.118)

0.451***(0.132)

Real interest rate 0.198**(0.077)

0.186**(0.083)

0.131(0.084)

0.284***(0.094)

Net financial wealth -0.014**(0.007)

-0.009(0.007)

-0.009(0.007)

-0.016*(0.009)

Net non financial wealth -0.061***(0.013)

-0.058***(0.014)

-0.044***(0.014)

-0.060***(0.016)

Growth in GDP percapita

----- ------ ------ ------

MemorandumAdjusted R-square 0.90 0.87 0.80 0.82Durbin-Watson 1.66 1.66 1.41 1.47

14

TABLE 1 C. Effect of adjustment on long-run parameters(Consumer Durables)

Variables NIPA CONSUMERDURABLES -- BEA

CONSUMERDURABLES -- OFCE

GROSS PRIVATESAVING

Public saving -0.350**(0.139)

-0.586***(0.091)

-0.537***(0.076)

-0.417***(0.068)

Net transfers -0.956***(0.246)

-1.137***(0.239)

-1.371***(0.199)

------

Inflation rate 0.604***(0.108)

0.584***(0.079)

0.703***(0.066)

0.663***(0.059)

Real interest rate 0.198**(0.077)

0.171**(0.085)

0.075(0.071)

0.220***(0.063)

Net financial wealth -0.014**(0.007)

----- ----- -----

Net non financial wealth -0.061***(0.013)

-0.042***(0.015)

-0.043***(0.012)

-0.018*(0.010)

Growth in GDP percapita

----- 0.136* (0.081)

0.309***(0.067)

0.249***(0.056)

MemorandumAdjusted R-square 0.90 0.83 0.90 0.87Durbin-Watson 1.66 1.68 2.01 1.76

15

TABLE 2 - Effect of adjustment on short run parametersVariables NIPA CAPITAL GAINS DEFINED BENEFIT

PENSIONINFLATION

Inflation rate 0.351***(0.113)

0.342**(0.140)

0.371***(0.129)

0.310*(0.152)

Real interest rate 0.135*(0.074)

0.099(0.091)

0.145*(0.083)

0.189*(0.010)

Net financial wealth -0.022***(0.006)

-0.012(0.008)

-0.012(0.007)

-0.013(0.008)

Net non financial wealth -0.056**(0.023)

-0.071**(0.028)

-0.070**(0.026)

-0.082**(0.016)

Error correction term -0.744***(0.198)

-0.676***(0.245)

-0.707***(0.026)

-0.695***(0.031)

MemorandumAdjusted R-square 0.56 0.33 0.43 0.36Durbin-Watson 1.75 1.76 1.55 1.53

16

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

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

19

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

20

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

21

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

22

Net financial wealth and cumulation of saving rates -- USA

0

0.5

1

1.5

2

2.5

3

3.5

Cumul. saving

Financial wealth

23

Net financial wealth and cumulation of saving rates --Japan

0

0.5

1

1.5

2

2.5

3

Financial wealth

Cumul. saving