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Should the Decline in the Personal Saving Rate Be
a Cause for Concern?
- (PDF 121K)
By C.
Alan Garner
The personal saving rate has received particular attention recently
because saving was negative in 2005 for the first time since the Great
Depression. Although saving declined in other developed countries during
this period, the U.S. decline was more pronounced than in most of these
countries.
A major concern is whether U.S. households are providing adequately for
long-term needs, such as future retirement and medical expenses. In
addition, low personal saving has created short-run concerns that a sudden
increase in the saving rate could reduce growth of consumer spending, real
output, and employment.
But there is another, often overlooked side to this story. Two major factors
suggest the decline in the personal saving rate may not be as alarming as it
is sometimes made out to be. First, various measurement problems with the
personal saving rate from the national income and product accounts suggest
household saving may not have declined as much as the statistics suggest.
Second, economic theory assumes that households rationally anticipate future
labor income and asset returns and plan their spending accordingly. If this
assumption is correct, the low personal saving rate may not foreshadow
wrenching future adjustments in consumer spending.
Garner provides some perspective on the decline in the personal saving rate
over the last two decades. After weighing the issues, he concludes that,
although there are some legitimate reasons for concern, the decline in the
personal saving rate may not be as alarming as it first appears.
Liquidity Risk Premia and Breakeven Inflation
Rates - (PDF
125K)
By Pu Shen In recent years, monetary policymakers
have monitored several measures of market expectations of future inflation.
One of these measures is based on the yield differential between nominal and
inflation indexed Treasury securities. This yield spread is also called the
“breakeven inflation rate.” An increase in the breakeven rate is sometimes
viewed as a sign that market inflation expectations may be on the rise. For
example, the FOMC frequently refers to the yield spread as a measure of
“inflation compensation” and considers the yield spread an indicator of
inflation expectations in policy deliberations.
Accurately inferring market expectations of inflation from yield spreads is
difficult. The difficulty lies in the differences in market liquidity
conditions between nominal and inflation indexed Treasury securities.
Shen presents evidence that liquidity differences between nominal and
inflation indexed Treasuries have been nontrivial. Consequently, simply
attributing changes in yield spreads to changes in market inflation
expectations and ignoring the liquidity risk premium could lead to
inaccurate inflation expectations.
A New Perspective on Rising Nonbusiness
Bankruptcy Filing Rates: Analyzing the Regional Factors - (PDF
458K)
By Kelly D. Edmiston Nonbusiness bankruptcy filing
rates have increased almost five-fold since 1980. This alarming growth was
largely the impetus for the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005. The intent of the new law, which went into effect in
October, 2005, was to eliminate alleged abuses of the bankruptcy system and
to reduce filing rates.
In deliberations on the new law, Congress expressed concern about the
underlying causes of bankruptcy. The tools currently available for analysis
leave serious gaps in understanding bankruptcy behavior. While many studies
have sought to discover the causes of the rising filing rates, they have
largely focused on aggregated data over time. This approach is logical—but
ignores the considerable variation in filing rates across regions. Only by
examining the regional differences in rates can we gain meaningful insight
into their causes.
Edmiston describes a new model of county bankruptcy filing rates. The model
contributes to the current understanding by improving on some of the
approaches already used in other studies and by including a number of
determinants not previously considered. He concludes that homestead
exemptions and wage garnishments can be effective policy levers in managing
rising bankruptcy filing rates. He also finds that social issues—stigma,
gambling, and health insurance, among others—are critical regional factors
that may help explain the rising bankruptcy filing rates. Finally, he shows
that higher levels of self-employment, another regional characteristic, are
associated with lower bankruptcy filing rates.
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