Excess Savings Research Articles

Household Excess Savings and the Transmission of Monetary Policy

Household savings rose above trend in many developed countries after the onset of COVID-19. Given its link to aggregate consumption, the presence of these "excess savings" has raised questions about their implications for the transmission of monetary policy. Using a panel of euro-area economies and high-frequency monetary policy shocks, we document that household excess savings dampen the effects of monetary policy on economic activity and inflation, especially during the pandemic period. To rationalize our empirical findings, we build a New Keynesian model in which households use savings to self-insure against counter-cyclical unemployment and consumption risk.

Transfers, Excess Savings, and Large Fiscal Multipliers

Transfers, Excess Savings, and Large Fiscal Multipliers

The Macroeconomic Effects of Excess Savings

We study the consequences of shocks to the household wealth distribution in dynamic general equilibrium by characterizing the rate at which excess wealth is depleted. Analytical results link the aggregate decumulation rate to the distribution of the additional balances, micro intertemporal marginal propensities to consume, and general equilibrium feedback. A quantitative heterogeneous agent New Keynesian model matches the depletion path of the excess savings built up during the COVID-19 pandemic across the income distribution. The model predicts a substantial but steadily waning boost to consumption and explains up to 40 percent of the surge in inflation observed in 2020 and 2021.

An update on Excess Savings in Selected Advanced Economies

In a previous FEDS Note, de Soyres, Moore, and Ortiz (2023), we conducted a comparison of household excess savings across advanced and emerging economies over different historical episodes. In that analysis, we found that the stock of excess savings accumulated during the pandemic in the U.S. was exhausted by 2023Q1, while other advanced economies were not expected to deplete their excess reserve until late in 2023.

Excess Savings and Consumer Behavior: Excess Compared to What?

How much accumulated savings do households hold, and what do these savings imply about future consumption? Economists typically consider excess savings when gauging the level of savings that households may use to maintain real consumption as costs rise. Economists have estimated strikingly different levels of currently held excess savings. We highlight the differences between measures of counterfactual savings—that is, the amount of savings households would be expected to hold barring unusual events—and their relevance in computing post pandemic excess savings. Furthermore, we show that, using counterfactual savings that rely on the idea of consumption smoothing, excess savings are currently positive in the case that households assume that recent income losses are transitory. These findings carry additional implications for expected personal consumption expenditure patterns.

Next generation edge computing: A roadmap to net zero emissions

Multi-access Edge Computing (MEC, formerly, Mobile Edge Computing) offers users of Mobile Devices (MDs) such as smartphones advantages in computational task completion times by offloading to superior but geographically close computing resources. There is a need to make these services more sustainable (energy-efficient) as an initial step towards net zero emissions. We have modelled a zero-latency edge node-MD connection as a single base station linked to a devoted server with the MD transmitting and receiving data via a Wireless Local Area Network (WLAN) with, wherever possible, identifiable real-world power ratings. In this paper, we demonstrate that the total energy usage by the MD and edge node hardware can be markedly less than that of the MD alone in 3 G, 4 G and 5 G WLAN networks. The energy savings, computed as percentages of MD-alone energy usage, are independent of data file size, are greater with computationally more complex tasks, and have a higher MD CPU workload but moderate server CPU workloads. Energy savings are highly dependent on the precise configuration of the base station with server type (peak power rating, the number of CPU cores and the maximum number of jobs processed simultaneously). A 5 G base station has the highest power consumption, but this is offset by much faster WLAN speeds, which can result in energy savings in excess of 90% compared with MD computation alone. We discuss the implications of these results for reducing global electricity use and achieving carbon neutrality to contribute towards net zero emissions.

Corporate excess savings: what does it have to do with M&A activities, cash holdings and debt repayments in Korea?

ABSTRACT Corporate excess savings, or gross savings in excess of fixed capital formation, can affect the real economy through the financial decisions of individual firms. Based on an unbalanced panel of more than 2,000 Korean listed companies from 2003 to 2021, this study analyses how excess savings are used in individual firms’ financial activities and their consequent impact on aggregate demand at the macroeconomic level. Excess savings are most often used for debt repayment. Considering heterogeneity, the excess savings of large firms are mainly related to M&A, while the excess savings of small firms are relatively more disbursed to cash holdings for the precautionary motive. Since 2010, the extent of its use in M&A has become stronger; M&A in large firms appears to crowd out fixed capital formation for a certain period of time. When this analysis is applied at the industry level, it is also consistent with the results of individual firms.

Current account imbalance and the inequality ratio of income to consumption: evidence from China and other Asian countries

This paper deals with global imbalances as an increasingly important issue in our age. While the literature establishes that current accounts are inversely related to the ratio of income to consumption inequality in OECD, our study finds that this relationship is reversed in Asia. That ratio has much to do with various schemes of consumption smoothing, which are affected by policy interventions to alleviate the effects of rising income inequality. Different policies may generate opposite outcomes. In OECD, policy encourages consumer credit and deficit spending among low-income people so that consumption inequality is kept artificially low, leading up to a current account deficit. In Asia, policy promotes output growth via high savings with no well-developed smoothing schemes designed to help poor households, so that consumption inequality moves in line with income inequality, with excess savings recycled into a current account surplus. Hence, any reduction in global imbalances requires both regions to adjust their policies for mitigating income inequality and optimizing smoothing schemes.

Capital flows and growth across developing countries

Foreign direct investment inflows are positively related to economic growth across developing countries—but so are savings in excess of investment. This paper develops an explanation for these known empirical findings by focusing on the limited availability of consumer credit in developing countries, together with general equilibrium effects. In the model, fast-growing developing countries scale up their holdings of debt assets, which creates net capital outflows—despite inflows of foreign direct investment—and reduces the world interest rate. Slow-growing developing countries reduce their holdings of debt assets in response, which creates net capital inflows despite outflows of foreign direct investment.

La evolución y el destino del ahorro extraordinario acumulado por los hogares españoles desde el inicio de la pandemia

Rationale Households overall built up a large stock of excess savings during the pandemic. The use of these excess savings and the potential amount currently available for spending are relevant to understanding how they may support consumption over the coming quarters. Takeaways •To end-2022, households had barely used the excess savings accumulated during the pandemic for purchases of consumer goods and services. The bulk of these funds have been channelled towards financial investments, specifically deposits and investment funds. •A more modest proportion of these savings – albeit one that has been increasing since 2021 – has been used to purchase non-financial assets (in particular, property) and to repay home loans. •A large share of the excess savings accumulated during the health crisis is concentrated among higher-income households, to such an extent that households in the bottom income quintile barely increased their savings in this period.

Capital Flows and the Eurozone's North-South Divide

This article offers a monetary perspective on capital flows and the Eurozone's north-south divide. It argues that finance-centric narratives in comparative political economy rightly emphasize financial instability in the periphery, but that the role of capital flows therein requires clarification. The article draws on post-Keynesian monetary theory, coherent accounting, and balance-of-payments data to make three points. First, the focus on the financial account as a driver of current accounts should be abandoned in favor of an analysis of gross capital flows. Gross flows need not stem from excess savings in core countries and can be independent from trade flows. Second, explanations of financial instability in the periphery should go beyond bank flows and consider speculative portfolio flows into bond markets and foreign direct investment into real estate. Third, rising spreads in the periphery during the Eurozone crisis and the outbreak of the pandemic were not triggered by balance-of-payments problems but by a reversal of speculative bond flows. Comparative political economy should thus dedicate more attention to institutions that render peripheral countries susceptible to speculative flows into asset markets.

Evolution in the Consumer ABS Market (Past, Present, and Future)

The consumer ABS market provides a large and growing source of funding to the US economy. Historically the market consisted primarily of auto loans, credit card receivables, and student loans. Over the past decade, esoteric ABS issuance has proliferated, as more markets are able to securitize cash flows to unlock a lower cost of funding relative to comparable corporate alternatives. Sectors that did not exist 10 years ago have grown to be large and liquid market sectors, including marketplace lending, solar, PACE, and consumer handset receivables. This trend has been aided by a pullback in bank lending, driven by post-Great Financial Crisis (“GFC”) regulation and capital regime changes. The Fed’s imposition of higher interest rates throughout 2022 and into 2023 is designed to slow the economy and reduce inflation but is also likely to put pressure on consumer performance in the coming months. While consumer balance sheets remain relatively healthy, excess savings accumulated during the pandemic have been eroding, and delinquency rates are expected to rise. While performance is expected to deteriorate, consumer ABS structures have gotten safer since the GFC—including via more credit enhancement and better-quality collateral—and some of the longer-standing structures have shown their ability to withstand a variety of macroeconomic environments without taking a loss. Despite the more robust structures, performance of newer esoteric asset classes will be watched closely as we enter a more volatile macroeconomic environment. The ABS market will continue to evolve in the coming years, as large structural change has tended to correspond to material changes in macroeconomic conditions. Regardless of the changes, we expect the market to remain an integral source of funding for the US consumer.

The Trickling Up of Excess Savings

We provide a simple framework connecting the distribution of excess savings across households to the dynamics of aggregate demand. Deficit-financed fiscal transfers generate excess savings. The poorest households with the highest marginal propensities to consume (MPCs) spend down their excess savings the fastest, increasing other households' incomes and their excess savings. This leads to a long-lasting increase in aggregate demand until, ultimately, excess savings have “trickled up” to the richest savers with the lowest MPCs, raising wealth inequality.

Excess Savings and Twin Deficits: The Transmission of Fiscal Stimulus in Open Economies

Previous articleNext article No AccessExcess Savings and Twin Deficits: The Transmission of Fiscal Stimulus in Open EconomiesRishabh Aggarwal, Adrien Auclert, Matthew Rognlie, and Ludwig StraubRishabh AggarwalStanford University, United States of America Search for more articles by this author , Adrien AuclertStanford University, CEPR, and NBER, United States of America Search for more articles by this author , Matthew RognlieNorthwestern University and NBER, United States of America Search for more articles by this author , and Ludwig StraubHarvard University, CEPR and NBER, United States of America Search for more articles by this author PDFPDF PLUSFull Text Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by NBER Macroeconomics Annual Volume 372023 Sponsored by the National Bureau of Economic Research (NBER) Article DOIhttps://doi.org/10.1086/723586 © 2023 National Bureau of Economic Research. All rights reserved.PDF download Crossref reports no articles citing this article.

Do fiscal deficits influence private savings in South Africa? An empirical note

Orientation: The neoclassical loanable funds theory predicts that fiscal deficits reduce the pool of available savings in the economy, but heterodox scholarship disputes the claim.Research purpose: The paper sets out to test the relationship between fiscal deficits and private savings.Motivation for the study: Scholars are divided on whether corporate South Africa is building up excess savings, with some arguing that it is not and others arguing that it is because of mistrust of government and uncertainty largely. The trends of net private savings and fiscal deficits suggest that something contrary to the postulation of the neoclassical loanable funds theory could be happening in the South African context.Research approach/design and method: The paper used data for the period 1960–2021 within the Toda-Yamamoto vector autoregressive modelling framework.Main findings: The results show that fiscal deficits increase savings but reduce interest rates in line with the heterodox view that the financial asset creation effect of debt-financed deficits improves savings and reduces interests through the liquidity channel.Managerial/practical implications: The lesson for policy is that fiscal deficits are healthy for the economy. However, the government must manage them at some reasonable level to maintain a constant flow of net financial assets to the private sector, thus bolstering savings. An unhealthy pursuit of fiscal surpluses can shift deficits to households and firms, and breed systemic financial instability.Contribution/value-added: The paper contributed to a nuanced understanding of the role of fiscal deficits in expanding savings, which runs counter to the theoretical underpinnings of fiscal conduct that pursues budget surpluses.

Bubbles and Stagnation

Abstract This paper studies the consequences of asset bubbles for economies that are vulnerable to persistent stagnation. Stagnation is the result of a shortage of assets that creates an oversupply of savings and puts downward pressure on the level of interest rates. Once the zero lower bound on the nominal interest rate binds, the real rate cannot adjust further downward, forcing output to fall instead. In such context, bubbles are useful as they expand the supply of assets, absorb excess savings, and raise the natural interest rate—the real rate that is compatible with full employment—crowding in consumption and raising welfare. However, a risky bubble that can collapse with positive probability is smaller and less effective in doing so than a safe bubble. In this case, fiscal policy in the form of promised bailout transfers in case of a bubble collapse, can support an existing bubble and improve its size.

A Hybrid Accuracy- and Energy-Aware Human Activity Recognition Model in IoT Environment

Personalised health and fitness provide users with information regarding their wellbeing and an opportunity to inform healthcare services for better patient outcomes. Underpinning this industry sector is the need to establish human activity recognition (HAR) in a ubiquitous manner. For example, through the use of smartwatches and/or mobile phones gathering information such as heart rates, movement, and steps of a user. The engineering challenge is providing accurate, informative, and timely data without rapidly depleting the mobile device's battery life. This problem is compounded as a number of algorithms used to process such data require substantial, cloud-based resources, to achieve higher accuracy. Therefore, a balance is required between battery depletion, accuracy of data, and timely delivery of results through a mixture of cloud and local algorithmic execution. In this paper, we propose <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">AE-HAR (Accuracy and Energy Aware-HAR)</i> model that delivers engineered solutions which approach optimal combinations in the consideration of energy consumption, accuracy, and timeliness of results. <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">AE-HAR</i> introduces a “light-weight” <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">machine learning</i> on-device component identifying the probabilistic accuracy of data together with energy consumption identification requirements. A heuristic is then adopted to determine if cloud-enabled calculations are required while including possible performance costs related to the analysis of networking infrastructures. Our model is validated in a real-world environment through experimentation that demonstrates accuracy in excess of 93% and energy consumption savings in excess of 94%.

The Trickling Up of Excess Savings

The Trickling Up of Excess Savings

Excess Savings during the COVID-19 Pandemic

Over the pandemic, historic levels of government transfers boosted household income while household spending was severely curtailed by social distancing. This led the personal saving rate to soar (Figure 1), and we estimate that U.S. households accumulated about $2.3 trillion in savings in 2020 and through the summer of 2021, above and beyond what they would have saved if income and spending components had grown at recent, pre-pandemic trends.

HOUSEHOLD BEHAVIOUR UNDER RATIONING

AbstractThe pandemic-induced economic crisis has seen a massive increase in savings as households could not spend their income. The last time that consumers were seriously rationed was during the Second World War. This article models the behaviour of households during the War years and its immediate aftermath in Ireland, Sweden, the US and UK. Savings were held in liquid form and, once the War was over and rationing eased, a consumption boom transpired. However, significant excess savings were converted into physical assets in the housing market. There is evidence that this pattern is being repeated as the Covid-19 crisis eases.