Working Paper No. 5
By Tamim Bayoumi
An overlapping generation model of the effects of financial deregulation is developed. The results indicate that deregulation will produce an exogenous short-run fall in saving, some of which will be recouped over time, while increasing the sensitivity of saving to wealth, current income, real interest rates and demographic factors. Empirical tests using regional saving data for the United Kingdom are reported, and found to generally accord with the theoretical model. It is estimated that deregulation caused an autonomous fall of 2¼% in the personal saving rate of the United Kingdom over the 1980s.
Financial Deregulation and Household Saving