Determinants of the Household Savings Rate in Sweden

Abstract: The Swedish household savings rate remains on elevated levels despite record high house prices, a buoyant Swedish economy, and aggressive monetary policy by the Swedish Riksbank. Utilizing cointegration techniques, this paper examines the long- and short-run determinants of the Swedish household savings rate during the period Q1:1980-Q3:2016. We also test for a potential structural break in the effect of house prices, and find substantial support for the hypothesis that housing bubble concerns have raised the household savings rate post the financial crisis of 2008. Our results indicate that the main determinants of the Swedish household savings rate are disposable income per capita growth, household interest payments, collective pension savings, house prices, the public sector budget balance, GDP growth, debt growth, and capital gains' share of disposable income. The results support the Precautionary Saving Hypothesis, the Permanent Income Hypothesis, and Ricardian Equivalence. We do however not find support for the Life-Cycle Hypothesis.