Economic uncertainty and household saving behavior – a cross country empirical analysis

Abstract

The global financial crisis wreaked havoc on the European economy and dented consumer confidence. This paper exploits a panel dataset of 18 EU countries over the period 2001-2014 to examine whether this decrease in consumer confidence affected household saving behaviors and if so, which specific sub-indicators of consumer sentiment played the most significant role. To tackle the issue of potential endogeneity between household saving rates and consumer confidence, we use an instrumental variable approach. Our results suggest that confidence in household financial situations has a substantially larger effect on household saving than confidence in the general economic situation. Moreover, we find that the impact of consumer confidence on household saving has increased after the crisis, potentially due to a threshold effect.