Frugality: Are We Fretting Too Much? Household Saving and Assets in the United States

Author/Editor:

Evan C Tanner ; Yasser Abdih

Publication Date:

September 1, 2009

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Household savings rates in the United States have recently crept up from all-time lows. Some have suggested that a shift toward frugality will hamper GDP growth-the Keynesian "paradox of thrift." We estimate that households compensate for a fall in their asset income by saving more out of their labor income, dollar-for-dollar. In the wake of the crisis, our model predicts that such primary savings will increase, but only temporarily and modestly, as household assets stabilize. As savings flows gradually accumulate, they help rebuild corporate net worth and hence firms' capacity to make capital investments. A timely return to pre-crisis levels of capital investment would require that U.S. households save substantially more than the model predicts, starting now. Hence, we should fret that our savings rates may be too low.

Series:

Working Paper No. 2009/197

Subject:

Consumption Disposable income Income Personal income Stocks

English

Publication Date:

September 1, 2009

ISBN/ISSN:

9781451873443/1018-5941

Stock No:

WPIEA2009197

Pages:

51

Please address any questions about this title to publications@imf.org