A Review of Policy Options for Monitoring Household Saving

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Proper understanding and monitoring of household saving are necessary to conduct appropriate macroeconomic policies aiming at a balanced economic recovery in the EU-15. The process of monitoring household saving is twofold: on the one hand, it concerns the liquidity level of the household savings portfolio (liquidity approach); and on the other hand, it places emphasis on the saving rates of households (saving rates approach).

Within the liquidity approach, in theory, each of the household motives (target saving, precautionary saving and pension saving) is related to specific saving products. However, inadequate financial education and low confidence in banking systems can distort the relationship of saving motives to saving products and lead to a sub-optimal savings portfolio, with poor yields and  excess liquidity (especially with regards to pension saving). Nevertheless, overall, yield spreads do have an impact on the corresponding relative savings market shares, confirming the effectiveness of monetary policy transmission mechanisms into the liquidity levels of household savings portfolios.

Regarding the saving rates approach, data show differentiated dynamics across EU-15 countries, partly owing to specific local habits and developments in financial markets. The persistent saving ratio differentials across countries, which also mirror differentiated propensities to accumulate target saving, could be partially reduced by the design of regulations whose primary goal is to improve the overall attractiveness of mortgage and consumer credits. In addition, since 2007, consistently significant beta-convergence observed in the results of the panel data regressions indicates that the need for balance sheet repair was stronger for countries with low saving ratios in the years preceding the financial crisis. 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 private consumption and saving. Conversely, the results confirm the prominent role played by the precautionary motive during the financial crisis of 2008-09, which is reflected in the strong impact of unemployment rates and housing prices.