Macroeconomic Determinants of Household Savings in Ukraine

Abstract

IntroductionSaving is one of the most important types of household's economic activities. Its significance can be seen from the point of view of both microeconomics as well as macroeconomics. First of all, household savings ensure stable level of consumption for households at microeconomic level during time of income reduction, for example, due to job loss, disability or retirement. Undoubtedly, savings provide safety for a household in sense of future uncertainty. Secondly, aggregated household savings at macroeconomic level can be used as a source of investments.There is a variety of articles, which elaborate on importance of savings for economy. For example, Ramsey (1928) was one of the first who tried to solve the problem of how much a nation should save with the help of mathematical modeling. Nevertheless, his study was not accepted by scientific society of his time due to serious mathematical tools. However, it was used as a basis for investigations of Koopmans (1963) and Cass (1965) in the 1960s. More recent work of Ramskyi (2013) elaborated on the influence of household savings on development of gross domestic product and found out that household savings had great potential to impact financial resources formation. In addition, Krupa (2013) allocated economic, social and political significance of savings for Ukrainian economy. Household savings were also considered as important source of investments in Ukraine by Ramskyi (2007), Stepanova and Udod (2012) as well as many other Ukrainian scholars.Generally, Ukrainian economists believe that household savings can become alternative to foreign capital, bank loans and budget funding as a source of real economy sector financing in Ukraine and have considerable potential. Therefore, policy makers should take into account household savings, sustainable growth of which will induce economic development of the country. Moreover, it is important for policy makers to understand which macroeconomic factors have the most significant influence on household savings in order to understand processes of their formation as well as to be able to manage them. Likewise, policy makers should be able to forecast values of household savings at macroeconomic level and use the results of forecasts in decision making processes.Aforementioned indicates topicality of household savings investigation at macroeconomic level. Admittedly, econometric modeling gives us suitable virtues for this research. The goal of the study is to determine the most significant factors that influence the formation of household savings in Ukraine at macroeconomic level. The object of research is one of the household economic activities, particularly - households` system saving at macroeconomic level. In addition, we would like to test the hypothesis whether there was structural break in formation of household savings in Ukraine after world financial crisis.Article consists of eight parts: Introduction, Literature Review, Methodology, Data Diagnostic, Model Estimation, Model Diagnostic, Structural Breaks Testing and Conclusions. In Literature Review section we have analyzed theoretical as well as recent empirical studies. Further, we have briefly described methods used for research. In particular, we have mentioned applied modeling technique in Methodology chapter. Data Diagnostic section includes unit roots testing of our data. In next section (Model Estimation) we have estimated error correction model as well as provided information about its econometric properties and interpretation of its parameters. Model Diagnostic part provides postdiagnostic tests of developed model. In the following Structural Breaks Testing chapter we have tested the hypothesis of household savings structural breaks in financial crisis years. Final section elaborates on conclusions and policy implications stemming from our research.1. Literature ReviewIn general, household savings are the difference between household income and expenditures. …