Targets, Interest Rates, and Household Saving in Urban China

October 1, 2011

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Format: Chicago

Malhar S Nabar. Targets, Interest Rates, and Household Saving in Urban China, (USA: International Monetary Fund, 2011) accessed November 23, 2024

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

This paper studies a panel of China's provinces over the period 1996-2009 during which urban household saving rates increased from 19 percent of disposable income to 30 percent. It finds that the increase in urban saving rates is negatively associated with the decline in real interest rates over this period. This negative association suggests that Chinese households save with a target level of saving in mind. When the return to saving declines (increases), it becomes more difficult (easier) to meet a target and households increase (lower) their saving out of current disposable income to compensate. The results are robust across specifications and to the inclusion of additional variables. A main policy implication is that an increase in real deposit rates may help lower household saving and boost domestic consumption.

Subject: Consumption, Disposable income, Financial services, Income, Land prices, National accounts, Prices, Real interest rates

Keywords: China, Consumption, Disposable income, Financial Liberalization, Global, Household saving, Income, Land prices, Precautionary saving motive, Real interest rates, Saving rate, Saving response, Saving-investment imbalance, Savings impulse, Target Savings, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/223
Stock No:

WPIEA2011223
ISBN:

9781463904258
ISSN:

1018-5941

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