Savings and Low Interest Rates – Can Low Interest Rate Environments Change the Effects of Determinants of Savings?

Sammanfattning: This thesis examines the effects of a low real interest rate environment on household savings. It specifically analyses whether there can be an increased importance of the income effect relative to the intertemporal consumption substitution effect and whether there can be an increased potency in the wealth effect of the stock market due to the financial assets substitution effect in this environment. The analysis is conducted by means of time series regression analysis using data from Sweden between the first quarter of 1962 and the second quarter of 2017 and from the United States between the first quarter of 1962 and the first quarter of 2017. We study short-term real interest rates, long-term real interest rates, and the real valuation of the stock market, while normalizing savings with disposable household income and controlling for lagged savings and the unemployment rate. The results do show changes in the importance and potency of the effects, however not in any way that supports the hypotheses. As the econometric model suffers from issues, the accuracy of the results can be questioned, and the area thus needs further research.