Abstract
The flow of saving as a fraction of disposable income (saving rate) and the stock of savings as a fraction of total wealth (savings ratio) are tightly connected. We use a standard dynamic model to show that they may move in opposite directions when financial and/or human capital change dramatically. Making this link theoretically explicit provides an internally consistent measure of savings ratios based on saving rates and other publicly available data. We implement this measure for the four largest economies: U.S., China, Germany and Japan, and identify periods in which saving rates and savings ratios have moved in opposite directions. We find that those departures are not explained by capital gains, but instead by changes in the value of human capital.
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