Unveiling the Determinants of Saving-Consumption Relationship: A Panel Data Approach

Abstract

The impact of uncertainty on saving is termed as precautionary saving. Thus, the main objective of this study is to investigate the effect of external global uncertainties on determining the saving-consumption relationship. In particular, we seek to compare the effect of two types of uncertainties, namely the monetary policy versus economic policy uncertainties in determining the behavior of saving-consumption. The results are compared between the top trade openness versus the least trade openness countries. Besides, the study also seeks to check for the existence and hence the effect of cross-section dependency in the relationship. For this purpose, the mean group (MG), pooled mean group (PMG) and common correlated effects mean group (CCEMG) estimators are applied. The data is from the year 1985 to 2017. The results reveal the existence and significance effect of cross-section dependence among countries and uncertainties matter in the saving-consumption relationship. The main factors that contribute to savings are the GDP per capita and the economic policy uncertainty while the main factors that contribute to consumptions are the GDP per capita and the monetary policy uncertainty.