| Summary: | Many propositions have been made to explain the increase in the German household saving rate since the year 2000 from an individual country perspective but most of them focus on partial aspects. This paper adds to the discussion by analysing whether factors common to other industrial countries help to explain the behaviour of the German household saving rate. We analyse the determinants of household saving rates in the G7 countries since the 1970s in a panel co-integration framework. Unlike many previous studies, our specification allows for heterogeneity in the long- and short-run parameters across countries and explicitly distinguishes between financial liberalisation effects and wealth effects. Apart from finding that income developments as well as real interest rates and inflation are influencing household savings in most countries, results suggest that wealth effects through house and stock prices play a role in many countries, notably over the more recent period. According to the model, the recent increase in the German saving rate is due to two factors: Firstly, the actual saving rate was below its estimated equilibrium level at the end of the 1990s, implying an upward correction over the medium term. Secondly, the equilibrium saving rate has moved upwards in the first half of the 2000s, largely because of declines in stock prices
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