Household Deleveraging and Saving Rates : A Cross-Country Analysis

A number of economists argue that household deleveraging can exert a significant drag on the economic recovery by weighing on consumption. Using a sample of OECD countries, this paper finds evidence of a negative relationship between household saving rates and changes in debt-to-income ratios. This relationship is however asymmetric, being statistically and economically more significant during debt build-ups than in deleveraging periods. Moreover, the effect of declining debt ratios on saving is only significant in economies where consumer credit is widespread. Results therefore suggest that the upward adjustment in saving rates associated with household deleveraging may widely differ across countries and may be overestimated for several economies