Private Saving Rates and Macroeconomic Uncertainty: Evidence from Spanish Regional Data

The onset of the Great Recession has been followed by increasing saving rates, which may reflect precautionary behaviour of households. In spite of a broad agreement on the theoretical implications of uncertainty on saving rates, empirical work has not yet reached a consensus on which is the most reliable measure of uncertainty. In this paper we empirically test the precautionary saving theory and explore different measures of macroeconomic uncertainty, using Spanish regional data for the period 1980-2007. Our results suggest that part of the large increase in saving rates that took place in the aftermath of the recession is related to a precautionary motive and that increased uncertainty causes greater savings rates. Moreover, our results also suggest that, in the case of the Spanish economy, the unemployment rate is a relevant variable to measure future income uncertainty.