The personal saving ratio

Quarterly Bulletin 1976 Q1
Published on 01 March 1976

A research paper, prepared in the Bank's Economic Section, largely by J. C Townend

The first section of this article traces the course of the personal saving ratio since 1973. The exceptionally high rate of personal saving in this period can be only partly explained by the equations normally used to determine and predict consumers' expenditure. The second section examines and assesses some of the alternative explanations of this unusual behaviour. Evidence was found to support the view that the value of liquid assets held by the personal sector, when adjusted for the effects of inflation, has had a significant effect on the volume of spending throughout the period, and was responsible for a large part of the unforeseen rise in saving since 1973. Somewhat weaker evidence was also found to support the view that, during a period of rapid inflation, expectations of price changes might lag behind actual changes, and that consumer resistance might then result in less expenditure and higher saving. Other possible theories were tested, but did not appear to be helpful. These included the uncertainty of employment prospects and future standards of living, and reductions in the value of illiquid wealth associated with the general weakness of financial and property markets in 1974 and the early part of 1975.

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