Precautionary saving of Chinese and U.S. households

Horag Choi, Steven Lugauer, Nelson C Mark

Research output: Contribution to journalArticleResearchpeer-review

8 Citations (Scopus)

Abstract

We employ a model of precautionary saving to study why household saving rates are high in China and low in the United States. The use of recursive preferences gives a convenient decomposition of saving into precautionary and nonprecautionary components. Over 80% of China's saving rate and nearly all U.S. saving arises from the precautionary motive. The difference between U.S. and Chinese household income growth rates is vastly more important than income risk for explaining the saving rates. The key mechanism is that precautionary savers have target wealth-to-income ratios, and rapid income growth necessitates high saving rates to maintain the ratio.

Original languageEnglish
Pages (from-to)635-661
Number of pages27
JournalJournal of Money Credit and Banking
Volume49
Issue number4
DOIs
Publication statusPublished - 1 Jun 2017

Keywords

  • China
  • precautionary saving
  • recursive preferences

Cite this