Abstract
THE stability of the relationship between income payments and savings balances, compared with income payments and the net amount saved, is of interest to persons concerned with economic, fiscal, and monetary theory. An experiment designed to test the linear relationships between (i) income payments and savings balances, and (2) income payments and the net amount saved is one way of obtaining information on this question. The test would then be one of comparing the correlation coefficients. If a higher correlation coefficient were obtained between income payments and savings balances than between income payments and the net amount saved, greater stability would be suggested in the first rather than in the second relationship. Such a finding would suggest instability in the marginal propensity to save, while an opposite finding would suggest the reverse. Information about the stability of the marginal propensity to save was obtained by fitting regressions to weekly time series data for the sample period of I947, I948, and half of I949. These data were obtained for a single New England community.1 This particular community was selected because (i) it was well isolated, (2) a small number of firms employed most of the wage earners in the community, and (3) the payrolls of these firms were subject to wide variation. Complete figures could not be obtained which indicated the receipt of all income payments, the holdings of all savings balances, and the net amount saved by the persons in this community during each week. Therefore the following figures were used: (i) payrolls in place of income payments, (2) time deposit balance figures in the commercial bank in place of savings balances, and (3) changes in the time deposit balances in place of the net amount saved. The payroll figures were obtained directly from the books of the major employers located in the community. The variations in the payrolls of the major employers accounted for most of the variation in income payments. The bank balance figures were obtained from the commercial bank in the community. These figures indicated the amount of time deposit balances held by the bank at the end of each week (Saturday). The figures on demand deposits were not used because changes in these accounts largely reflected the financial transactions of firms, which included the sales of outputs, the purchases of inputs, and other changes in asset holdings. The net amount saved each week was assumed to equal the change in the bank balance from the preceding week. The evidence that was available suggested positive correlations (i) between time deposit balances and all savings balances, and (2) between changes in time deposit balances and the net amount saved. No evidence was found of a negative correlation between the figures which were used and the ideal figures. The use of figures obtained from the bank and the employers had the advantage of eliminating the need of relying on data which otherwise could only have been obtained from household records and interviews. The following correlation coefficients were obtained from these data: 2
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