Policy options for European household saving

Abstract

The purpose of this paper is to monitor the household saving to conduct appropriate macroeconomic policies aiming at a balanced economic recovery in the EU-15. Taking saving rates approach, which places emphasis on the household saving to disposable income ratios, consistently significant β-convergence was observed since 2007 in the European Union, indicating that the need for balance sheet repair was stronger for countries with low pre-crisis saving rates. The absence of correlation between saving ratios and different types of saving yields suggests the poor transmission of monetary policies in the trade-off between consumption and saving. Households seem to disregard interest rates and inflation when they decide on consumption and saving plans. Conversely, the results confirm the prominent role played by the precautionary motives during the financial crisis of 2008~2009, which is reflected in the strong impact of unemployment rates and housing prices. In order to monitor household saving, regulators should place further focus on financial education and should remain vigilant regarding unemployment and housing price developments. To a certain extent, policies that are better aligned at European level to monitor household saving should contribute to converging saving ratios, hereby reinforcing macroeconomic stability and integration in the European Union.