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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.
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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
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
Adjustments discussed / proposed • INSEE paper: • individually identifiable consumption • indirect taxes • pension saving • consumption of fixed capital • consumer durables
Adjustments discussed / proposed • BEA paper: • Defined benefit pension plans • Inflation • Taxation of capital gains • consumer durables
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)
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?)
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
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
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
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
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
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
Financial wealth Cumul. saving
Cumul. saving Financial wealth